Returns At Zad Holding Company Q.P.S.C (DSM:ZHCD) Appear To Be Weighed Down

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 Zad Holding Company Q.P.S.C (DSM:ZHCD) and its ROCE trend, we weren't exactly thrilled.

What Is 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. To calculate this metric for Zad Holding Company Q.P.S.C, this is the formula:

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

0.13 = ر.ق226m ÷ (ر.ق2.5b - ر.ق821m) (Based on the trailing twelve months to September 2022).

Thus, Zad Holding Company Q.P.S.C has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 9.8% it's much better.

Check out our latest analysis for Zad Holding Company Q.P.S.C

Historical performance is a great place to start when researching a stock so above you can see the gauge for Zad Holding Company Q.P.S.C's ROCE against it's prior returns. If you'd like to look at how Zad Holding Company Q.P.S.C has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Zad Holding Company Q.P.S.C's ROCE Trending?

There hasn't been much to report for Zad Holding Company Q.P.S.C's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Zad Holding Company Q.P.S.C doesn't end up being a multi-bagger in a few years time.

Our Take On Zad Holding Company Q.P.S.C's ROCE

In a nutshell, Zad Holding Company Q.P.S.C has been trudging along with the same returns from the same amount of capital over the last five years. Yet to long term shareholders the stock has gifted them an incredible 225% return in the last five years, so the market appears to be rosy about its future. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Zad Holding Company Q.P.S.C (of which 2 are significant!) that you should know about.

While Zad Holding Company Q.P.S.C isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.