Zad Holding Company Q.P.S.C (DSM:ZHCD) Hasn't Managed To Accelerate Its Returns

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Having said that, from a first glance at Zad Holding Company Q.P.S.C (DSM:ZHCD) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is 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 Zad Holding Company Q.P.S.C is:

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

0.12 = ر.ق224m ÷ (ر.ق2.7b - ر.ق760m) (Based on the trailing twelve months to March 2022).

Thus, Zad Holding Company Q.P.S.C has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 9.4% generated by the Food industry.

View 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're interested in investigating Zad Holding Company Q.P.S.C's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Zad Holding Company Q.P.S.C Tell Us?

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. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Zad Holding Company Q.P.S.C to be a multi-bagger going forward.

In Conclusion...

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 308% 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.

Zad Holding Company Q.P.S.C does have some risks though, and we've spotted 1 warning sign for Zad Holding Company Q.P.S.C that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.