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

What underlying fundamental trends can indicate that a company might be in decline? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. In light of that, from a first glance at Qatar Fuel Company Q.P.S.C. (WOQOD) (DSM:QFLS), we've spotted some signs that it could be struggling, so let's investigate.

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. 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)

0.058 = ر.ق523m ÷ (ر.ق14b - ر.ق5.1b) (Based on the trailing twelve months to September 2024).

Thus, Qatar Fuel Company Q.P.S.C. (WOQOD) has an ROCE of 5.8%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 10%.

Check out 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're interested, you can view the analysts predictions in our free analyst 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?

In terms of Qatar Fuel Company Q.P.S.C. (WOQOD)'s historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 9.9% that they were earning five years ago. 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 Qatar Fuel Company Q.P.S.C. (WOQOD) becoming one if things continue as they have.

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

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Investors haven't taken kindly to these developments, since the stock has declined 16% from where it was five years ago. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

One more thing, we've spotted 1 warning sign facing Qatar Fuel Company Q.P.S.C. (WOQOD) that you might find interesting.

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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.