Qatar Fuel Company Q.P.S.C. (WOQOD) (DSM:QFLS) Will Be Hoping To Turn Its Returns On Capital Around

What are the early trends we should look for to identify a stock that could 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. 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 Qatar Fuel Company Q.P.S.C. (WOQOD) (DSM:QFLS), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Qatar Fuel Company Q.P.S.C. (WOQOD), this is the formula:

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

0.065 = ر.ق586m ÷ (ر.ق13b - ر.ق4.3b) (Based on the trailing twelve months to June 2023).

Therefore, Qatar Fuel Company Q.P.S.C. (WOQOD) has an ROCE of 6.5%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 12%.

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

In the above chart we have measured Qatar Fuel Company Q.P.S.C. (WOQOD)'s prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Qatar Fuel Company Q.P.S.C. (WOQOD) Tell Us?

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. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

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

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Qatar Fuel Company Q.P.S.C. (WOQOD). These trends are starting to be recognized by investors since the stock has delivered a 40% gain to shareholders who've held over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

On a final note, we found 2 warning signs for Qatar Fuel Company Q.P.S.C. (WOQOD) (1 is significant) you should be aware of.

While Qatar Fuel Company Q.P.S.C. (WOQOD) isn't earning the highest return, check out this free list of companies that are 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.