What Industries Qatar Q.P.S.C's (DSM:IQCD) Returns On Capital Can Tell Us

When we're researching a company, it's sometimes hard to find the warning signs, but there are some financial metrics that can help spot trouble early. More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. So after glancing at the trends within Industries Qatar Q.P.S.C (DSM:IQCD), we weren't too hopeful.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Industries Qatar Q.P.S.C, this is the formula:

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

0.017 = ر.ق582m ÷ (ر.ق36b - ر.ق1.5b) (Based on the trailing twelve months to December 2020).

Thus, Industries Qatar Q.P.S.C has an ROCE of 1.7%. In absolute terms, that's a low return and it also under-performs the Industrials industry average of 5.5%.

Check out our latest analysis for Industries Qatar Q.P.S.C

Above you can see how the current ROCE for Industries Qatar Q.P.S.C compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Industries Qatar Q.P.S.C.

So How Is Industries Qatar Q.P.S.C's ROCE Trending?

In terms of Industries Qatar Q.P.S.C's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 2.5% five years ago, but since then it has dropped noticeably. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Industries Qatar Q.P.S.C becoming one if things continue as they have.

The Bottom Line On Industries Qatar Q.P.S.C's ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. In spite of that, the stock has delivered a 34% return to shareholders who held over the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

Industries Qatar Q.P.S.C does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. 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.
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