We Like These Underlying Return On Capital Trends At Qatari German Company for Medical Devices (Q.P.S.C.) (DSM:QGMD)

Did you know there are some financial metrics that can provide clues of a potential 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. So when we looked at Qatari German Company for Medical Devices (Q.P.S.C.) (DSM:QGMD) and its trend of ROCE, we really liked what we saw.

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. 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)

0.021 = ر.ق3.5m ÷ (ر.ق200m - ر.ق33m) (Based on the trailing twelve months to September 2023).

So, Qatari German Company for Medical Devices (Q.P.S.C.) has an ROCE of 2.1%. Ultimately, that's a low return and it under-performs the Medical Equipment industry average of 9.4%.

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'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.

The Trend Of ROCE

Qatari German Company for Medical Devices (Q.P.S.C.) has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 2.1% on its capital. And unsurprisingly, like most companies trying to break into the black, Qatari German Company for Medical Devices (Q.P.S.C.) is utilizing 47% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

One more thing to note, Qatari German Company for Medical Devices (Q.P.S.C.) has decreased current liabilities to 17% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Key Takeaway

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. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Qatari German Company for Medical Devices (Q.P.S.C.) does have some risks, we noticed 2 warning signs (and 1 which makes us a bit uncomfortable) we think 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.