Qatar Fuel Company Q.P.S.C.(WOQOD)'s (DSM:QFLS) Returns On Capital Not Reflecting Well On The Business

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. 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)

0.071 = ر.ق665m ÷ (ر.ق13b - ر.ق3.9b) (Based on the trailing twelve months to December 2021).

Thus, Qatar Fuel Company Q.P.S.C.(WOQOD) has an ROCE of 7.1%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 10%.

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

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. Over the last five years, returns on capital have decreased to 7.1% from 9.3% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line

While returns have fallen for Qatar Fuel Company Q.P.S.C.(WOQOD) in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has followed suit returning a meaningful 71% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

Qatar Fuel Company Q.P.S.C.(WOQOD) does have some risks, we noticed 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

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.