Mesaieed Petrochemical Holding Company Q.P.S.C (DSM:MPHC) Shareholders Will Want The ROCE Trajectory To Continue

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Mesaieed Petrochemical Holding Company Q.P.S.C (DSM:MPHC) so let's look a bit deeper.

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. To calculate this metric for Mesaieed Petrochemical Holding Company Q.P.S.C, this is the formula:

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

0.11 = ر.ق1.9b ÷ (ر.ق18b - ر.ق384m) (Based on the trailing twelve months to September 2022).

Thus, Mesaieed Petrochemical Holding Company Q.P.S.C has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Chemicals industry average of 10%.

See our latest analysis for Mesaieed Petrochemical Holding Company Q.P.S.C

In the above chart we have measured Mesaieed Petrochemical Holding Company Q.P.S.C's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Mesaieed Petrochemical Holding Company Q.P.S.C.

How Are Returns Trending?

Mesaieed Petrochemical Holding Company Q.P.S.C is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 60% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line On Mesaieed Petrochemical Holding Company Q.P.S.C's ROCE

To sum it up, Mesaieed Petrochemical Holding Company Q.P.S.C is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a solid 71% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Mesaieed Petrochemical Holding Company Q.P.S.C does have some risks though, and we've spotted 1 warning sign for Mesaieed Petrochemical Holding Company Q.P.S.C that you might be interested in.

While Mesaieed Petrochemical Holding Company 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.