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

There are a few key trends to look for if we want to identify the next multi-bagger. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. 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.

Understanding 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. Analysts use this formula to calculate it for Qatari German Company for Medical Devices (Q.P.S.C.):

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

0.034 = ر.ق5.6m ÷ (ر.ق202m - ر.ق36m) (Based on the trailing twelve months to June 2023).

So, Qatari German Company for Medical Devices (Q.P.S.C.) has an ROCE of 3.4%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 10.0%.

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

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're interested in investigating Qatari German Company for Medical Devices (Q.P.S.C.)'s past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

The fact that Qatari German Company for Medical Devices (Q.P.S.C.) is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 3.4% on its capital. In addition to that, Qatari German Company for Medical Devices (Q.P.S.C.) is employing 44% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a related note, the company's ratio of current liabilities to total assets has decreased to 18%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Qatari German Company for Medical Devices (Q.P.S.C.) has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line On Qatari German Company for Medical Devices (Q.P.S.C.)'s ROCE

Long story short, we're delighted to see that Qatari German Company for Medical Devices (Q.P.S.C.)'s reinvestment activities have paid off and the company is now profitable. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Qatari German Company for Medical Devices (Q.P.S.C.) (of which 1 is significant!) 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.

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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.