Zad Holding Company Q.P.S.C's (DSM:ZHCD) Returns Have Hit A Wall

Simply Wall St
May 24, 2021
Source: Shutterstock

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Zad Holding Company Q.P.S.C (DSM:ZHCD), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed 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)

0.069 = ر.ق114m ÷ (ر.ق2.4b - ر.ق733m) (Based on the trailing twelve months to December 2020).

So, Zad Holding Company Q.P.S.C has an ROCE of 6.9%. Ultimately, that's a low return and it under-performs the Food industry average of 9.4%.

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

DSM:ZHCD Return on Capital Employed May 25th 2021

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. 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.

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. 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.

The Bottom Line

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 202% 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.

One more thing, we've spotted 1 warning sign facing Zad Holding Company Q.P.S.C that you might find interesting.

While Zad Holding Company Q.P.S.C 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.

If you’re looking to trade a wide range of investments, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.