Mannai Corporation Q.P.S.C (DSM:MCCS) Knows How To Allocate Capital Effectively

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Mannai Corporation Q.P.S.C's (DSM:MCCS) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Mannai Corporation Q.P.S.C is:

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

0.28 = ر.ق599m ÷ (ر.ق7.7b - ر.ق5.5b) (Based on the trailing twelve months to September 2022).

Thus, Mannai Corporation Q.P.S.C has an ROCE of 28%. In absolute terms that's a great return and it's even better than the Industrials industry average of 16%.

Check out our latest analysis for Mannai Corporation Q.P.S.C

Historical performance is a great place to start when researching a stock so above you can see the gauge for Mannai Corporation Q.P.S.C's ROCE against it's prior returns. If you're interested in investigating Mannai Corporation Q.P.S.C's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Mannai Corporation Q.P.S.C has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 534%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Interestingly, the business may be becoming more efficient because it's applying 66% less capital than it was five years ago. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 72% of the business, which is more than it was five years ago. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

In Conclusion...

In the end, Mannai Corporation Q.P.S.C has proven it's capital allocation skills are good with those higher returns from less amount of capital. And a remarkable 145% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we found 5 warning signs for Mannai Corporation Q.P.S.C (4 are potentially serious) you should be aware of.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.