There Are Reasons To Feel Uneasy About Al Meera Consumer Goods Company Q.P.S.C's (DSM:MERS) Returns On Capital

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. 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. Although, when we looked at Al Meera Consumer Goods Company Q.P.S.C (DSM:MERS), it didn't seem to tick all of these boxes.

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. Analysts use this formula to calculate it for Al Meera Consumer Goods Company Q.P.S.C:

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

0.11 = ر.ق208m ÷ (ر.ق2.7b - ر.ق790m) (Based on the trailing twelve months to March 2021).

Therefore, Al Meera Consumer Goods Company Q.P.S.C has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Consumer Retailing industry average of 9.4%.

Check out our latest analysis for Al Meera Consumer Goods Company Q.P.S.C

Above you can see how the current ROCE for Al Meera Consumer Goods Company 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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

In terms of Al Meera Consumer Goods Company Q.P.S.C's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 14% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

The Key Takeaway

Bringing it all together, while we're somewhat encouraged by Al Meera Consumer Goods Company Q.P.S.C's reinvestment in its own business, we're aware that returns are shrinking. Unsurprisingly, the stock has only gained 12% 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.

If you're still interested in Al Meera Consumer Goods Company Q.P.S.C it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

While Al Meera Consumer Goods 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.

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