Mesaieed Petrochemical Holding Company Q.P.S.C's (DSM:MPHC) Returns On Capital Are Heading Higher

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. 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.

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. 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)

0.10 = ر.ق1.8b ÷ (ر.ق18b - ر.ق424m) (Based on the trailing twelve months to December 2022).

So, Mesaieed Petrochemical Holding Company Q.P.S.C has an ROCE of 10%. That's a relatively normal return on capital, and it's around the 9.1% generated by the Chemicals industry.

Check out 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'd like to look at how Mesaieed Petrochemical Holding Company 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.

What The Trend Of ROCE Can Tell Us

Mesaieed Petrochemical Holding Company Q.P.S.C has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 50% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Key Takeaway

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. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 61% return over the last five years. 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.

If you'd like to know about the risks facing Mesaieed Petrochemical Holding Company Q.P.S.C, we've discovered 1 warning sign that you should be aware of.

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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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.