Qatari German Company for Medical Devices (Q.P.S.C.) (DSM:QGMD) Is Looking To Continue Growing Its Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Qatari German Company for Medical Devices (Q.P.S.C.) (DSM:QGMD) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Qatari German Company for Medical Devices (Q.P.S.C.), this is the formula:

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

0.04 = ر.ق5.1m ÷ (ر.ق194m - ر.ق66m) (Based on the trailing twelve months to December 2022).

So, Qatari German Company for Medical Devices (Q.P.S.C.) has an ROCE of 4.0%. Ultimately, that's a low return and it under-performs the Medical Equipment industry average of 10%.

View our latest analysis for Qatari German Company for Medical Devices (Q.P.S.C.)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Qatari German Company for Medical Devices (Q.P.S.C.)'s ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Qatari German Company for Medical Devices (Q.P.S.C.), check out these free graphs here.

So How Is Qatari German Company for Medical Devices (Q.P.S.C.)'s ROCE Trending?

Shareholders will be relieved that Qatari German Company for Medical Devices (Q.P.S.C.) has broken into profitability. The company now earns 4.0% on its capital, because five years ago it was incurring losses. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.

In Conclusion...

As discussed above, Qatari German Company for Medical Devices (Q.P.S.C.) appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we found 3 warning signs for Qatari German Company for Medical Devices (Q.P.S.C.) (2 are concerning) you should be aware of.

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.