Qatar Fuel Company Q.P.S.C.(WOQOD)'s (DSM:QFLS) Returns Have Hit A Wall

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. 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. In light of that, when we looked at Qatar Fuel Company Q.P.S.C.(WOQOD) (DSM:QFLS) and its ROCE trend, we weren't exactly thrilled.

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. 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)

0.074 = ر.ق674m ÷ (ر.ق13b - ر.ق3.5b) (Based on the trailing twelve months to September 2021).

Thus, Qatar Fuel Company Q.P.S.C.(WOQOD) has an ROCE of 7.4%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 9.5%.

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, you can check out the forecasts from the analysts covering Qatar Fuel Company Q.P.S.C.(WOQOD) here for free.

How Are Returns Trending?

There are better returns on capital out there than what we're seeing at Qatar Fuel Company Q.P.S.C.(WOQOD). The company has employed 24% more capital in the last five years, and the returns on that capital have remained stable at 7.4%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

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

In conclusion, Qatar Fuel Company Q.P.S.C.(WOQOD) has been investing more capital into the business, but returns on that capital haven't increased. Although the market must be expecting these trends to improve because the stock has gained 70% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Qatar Fuel Company Q.P.S.C.(WOQOD) does have some risks though, and we've spotted 1 warning sign for Qatar Fuel Company Q.P.S.C.(WOQOD) that you might be interested in.

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.