Returns At Qatari German Company for Medical Devices (Q.P.S.C.) (DSM:QGMD) Are On The Way Up

By
Simply Wall St
Published
January 26, 2022
DSM:QGMD
Source: Shutterstock

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. 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 that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Qatari German Company for Medical Devices (Q.P.S.C.) is:

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

0.011 = ر.ق1.6m ÷ (ر.ق191m - ر.ق52m) (Based on the trailing twelve months to June 2021).

Therefore, Qatari German Company for Medical Devices (Q.P.S.C.) has an ROCE of 1.1%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 12%.

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

roce
DSM:QGMD Return on Capital Employed January 26th 2022

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

It's great to see that Qatari German Company for Medical Devices (Q.P.S.C.) has started to generate some pre-tax earnings from prior investments. The company was generating losses five years ago, but now it's turned around, earning 1.1% which is no doubt a relief for some early shareholders. In regards to capital employed, Qatari German Company for Medical Devices (Q.P.S.C.) is using 24% less capital than it was five years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. The reduction could indicate that the company is selling some assets, and considering returns are up, they appear to be selling the right ones.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Essentially the business now has suppliers or short-term creditors funding about 27% of its operations, which isn't ideal. It's worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.

In Conclusion...

In summary, it's great to see that Qatari German Company for Medical Devices (Q.P.S.C.) has been able to turn things around and earn higher returns on lower amounts of capital. Since the stock has returned a staggering 191% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Qatari German Company for Medical Devices (Q.P.S.C.) can keep these trends up, it could have a bright future ahead.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Qatari German Company for Medical Devices (Q.P.S.C.) (of which 1 doesn't sit too well with us!) that you should know about.

While Qatari German Company for Medical Devices (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.

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.