Qatar Fuel Company Q.P.S.C. (WOQOD) (DSM:QFLS) Could Be Struggling To Allocate Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Qatar Fuel Company Q.P.S.C. (WOQOD) (DSM:QFLS) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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

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. The formula for this calculation on Qatar Fuel Company Q.P.S.C. (WOQOD) is:

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

0.071 = ر.ق625m ÷ (ر.ق13b - ر.ق4.4b) (Based on the trailing twelve months to March 2023).

Therefore, Qatar Fuel Company Q.P.S.C. (WOQOD) has an ROCE of 7.1%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 11%.

View our latest analysis for Qatar Fuel Company Q.P.S.C. (WOQOD)

Above you can see how the current ROCE for Qatar Fuel Company Q.P.S.C. (WOQOD) 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 Qatar Fuel Company Q.P.S.C. (WOQOD).

What Can We Tell From Qatar Fuel Company Q.P.S.C. (WOQOD)'s ROCE Trend?

On the surface, the trend of ROCE at Qatar Fuel Company Q.P.S.C. (WOQOD) doesn't inspire confidence. To be more specific, ROCE has fallen from 12% over the last five years. 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.

Our Take On Qatar Fuel Company Q.P.S.C. (WOQOD)'s ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Qatar Fuel Company Q.P.S.C. (WOQOD) is reinvesting for growth and has higher sales as a result. Furthermore the stock has climbed 53% over the last five years, it would appear that investors are upbeat about the future. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

If you'd like to know more about Qatar Fuel Company Q.P.S.C. (WOQOD), we've spotted 2 warning signs, and 1 of them is potentially serious.

While Qatar Fuel Company Q.P.S.C. (WOQOD) 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.