Capital Allocation Trends At Estithmar Holding Q.P.S.C (DSM:IGRD) Aren't Ideal

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Estithmar Holding Q.P.S.C (DSM:IGRD), we don't think it's current trends fit the mold of a multi-bagger.

What Is 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 Estithmar Holding Q.P.S.C, this is the formula:

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

0.075 = ر.ق433m ÷ (ر.ق8.7b - ر.ق2.9b) (Based on the trailing twelve months to March 2023).

Thus, Estithmar Holding Q.P.S.C has an ROCE of 7.5%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.5%.

View our latest analysis for Estithmar Holding Q.P.S.C

In the above chart we have measured Estithmar Holding 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.

So How Is Estithmar Holding Q.P.S.C's ROCE Trending?

When we looked at the ROCE trend at Estithmar Holding Q.P.S.C, we didn't gain much confidence. To be more specific, ROCE has fallen from 9.8% over the last one year. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

In Conclusion...

In summary, despite lower returns in the short term, we're encouraged to see that Estithmar Holding Q.P.S.C is reinvesting for growth and has higher sales as a result. However, total returns to shareholders over the last year have been flat, which could indicate these growth trends potentially aren't accounted for yet by investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

If you'd like to know more about Estithmar Holding Q.P.S.C, we've spotted 3 warning signs, and 2 of them are significant.

While Estithmar Holding Q.P.S.C isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.