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

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Mesaieed Petrochemical Holding Company Q.P.S.C's (DSM:MPHC) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Mesaieed Petrochemical Holding Company Q.P.S.C is:

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

0.098 = ر.ق1.6b ÷ (ر.ق17b - ر.ق530m) (Based on the trailing twelve months to March 2023).

Thus, Mesaieed Petrochemical Holding Company Q.P.S.C has an ROCE of 9.8%. In absolute terms, that's a low return but it's around the Chemicals industry average of 8.5%.

Check out our latest analysis for Mesaieed Petrochemical Holding Company 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 want to delve into the historical earnings, revenue and cash flow of Mesaieed Petrochemical Holding Company Q.P.S.C, check out these free graphs here.

The Trend Of ROCE

Mesaieed Petrochemical Holding Company Q.P.S.C is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 23% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. 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

In summary, we're delighted to see that Mesaieed Petrochemical Holding Company Q.P.S.C has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a solid 50% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

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.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.