Mesaieed Petrochemical Holding Company Q.P.S.C's (DSM:MPHC) Returns On Capital Tell Us There Is Reason To Feel Uneasy

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. So after glancing at the trends within Mesaieed Petrochemical Holding Company Q.P.S.C (DSM:MPHC), we weren't too hopeful.

Return On Capital Employed (ROCE): What is it?

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)

0.061 = ر.ق957m ÷ (ر.ق16b - ر.ق339m) (Based on the trailing twelve months to March 2021).

So, Mesaieed Petrochemical Holding Company Q.P.S.C has an ROCE of 6.1%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 9.9%.

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

Historical performance is a great place to start when researching a stock so above you can see the gauge for Mesaieed Petrochemical Holding Company Q.P.S.C's ROCE against it's prior returns. If you're interested in investigating Mesaieed Petrochemical Holding Company Q.P.S.C's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Mesaieed Petrochemical Holding Company Q.P.S.C Tell Us?

We are a bit worried about the trend of returns on capital at Mesaieed Petrochemical Holding Company Q.P.S.C. To be more specific, the ROCE was 8.0% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect Mesaieed Petrochemical Holding Company Q.P.S.C to turn into a multi-bagger.

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

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. In spite of that, the stock has delivered a 20% return to shareholders who held over the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

While Mesaieed Petrochemical Holding Company Q.P.S.C doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation on our platform.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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