Returns At Aamal Company Q.P.S.C (DSM:AHCS) Appear To Be Weighed Down

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Aamal Company Q.P.S.C (DSM:AHCS), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Aamal Company Q.P.S.C, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.041 = ر.ق327m ÷ (ر.ق9.0b - ر.ق1.0b) (Based on the trailing twelve months to March 2023).

Thus, Aamal Company Q.P.S.C has an ROCE of 4.1%. In absolute terms, that's a low return and it also under-performs the Industrials industry average of 7.0%.

View our latest analysis for Aamal Company Q.P.S.C

In the above chart we have measured Aamal Company Q.P.S.C's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

Over the past five years, Aamal Company Q.P.S.C's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Aamal Company Q.P.S.C doesn't end up being a multi-bagger in a few years time. On top of that you'll notice that Aamal Company Q.P.S.C has been paying out a large portion (66%) of earnings in the form of dividends to shareholders. Most shareholders probably know this and own the stock for its dividend.

Our Take On Aamal Company Q.P.S.C's ROCE

In summary, Aamal Company Q.P.S.C isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Unsurprisingly, the stock has only gained 17% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

One more thing to note, we've identified 1 warning sign with Aamal Company Q.P.S.C and understanding it should be part of your investment process.

While Aamal Company Q.P.S.C may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.