Returns At Industries Qatar Q.P.S.C (DSM:IQCD) Are On The Way Up

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Industries Qatar Q.P.S.C (DSM:IQCD) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Industries Qatar Q.P.S.C:

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

0.091 = ر.ق3.5b ÷ (ر.ق40b - ر.ق1.5b) (Based on the trailing twelve months to September 2021).

Thus, Industries Qatar Q.P.S.C has an ROCE of 9.1%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.1%.

See our latest analysis for Industries Qatar Q.P.S.C

In the above chart we have measured Industries Qatar Q.P.S.C's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Industries Qatar Q.P.S.C here for free.

What The Trend Of ROCE Can Tell Us

Industries Qatar Q.P.S.C is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 221% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line

As discussed above, Industries Qatar Q.P.S.C appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has returned a solid 73% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Industries Qatar Q.P.S.C can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 1 warning sign for Industries Qatar Q.P.S.C you'll probably want to know about.

While Industries Qatar 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.

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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.