Qatar Fuel Company Q.P.S.C.(WOQOD) (DSM:QFLS) May Have Issues Allocating Its Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. 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)

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

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

0.068 = ر.ق601m ÷ (ر.ق13b - ر.ق4.3b) (Based on the trailing twelve months to June 2021).

Thus, Qatar Fuel Company Q.P.S.C.(WOQOD) has an ROCE of 6.8%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 8.7%.

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

When we looked at the ROCE trend at Qatar Fuel Company Q.P.S.C.(WOQOD), we didn't gain much confidence. To be more specific, ROCE has fallen from 8.9% over the last five years. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

The Key Takeaway

We're a bit apprehensive about Qatar Fuel Company Q.P.S.C.(WOQOD) because despite more capital being deployed in the business, returns on that capital and sales have both fallen. However the stock has delivered a 67% return to shareholders over the last five years, so investors might be expecting the trends to turn around. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

On a final note, we've found 1 warning sign for Qatar Fuel Company Q.P.S.C.(WOQOD) that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.
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