Returns On Capital At Qatar Fuel Company Q.P.S.C. (WOQOD) (DSM:QFLS) Paint A Concerning Picture

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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. 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.

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 Qatar Fuel Company Q.P.S.C. (WOQOD) is:

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

0.062 = ر.ق582m ÷ (ر.ق14b - ر.ق5.1b) (Based on the trailing twelve months to September 2023).

Therefore, Qatar Fuel Company Q.P.S.C. (WOQOD) has an ROCE of 6.2%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 11%.

See 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?

In terms of Qatar Fuel Company Q.P.S.C. (WOQOD)'s historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 6.2% from 11% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

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

In summary, Qatar Fuel Company Q.P.S.C. (WOQOD) is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And with the stock having returned a mere 18% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

One final note, you should learn about the 2 warning signs we've spotted with Qatar Fuel Company Q.P.S.C. (WOQOD) (including 1 which is significant) .

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.