Returns At Mesaieed Petrochemical Holding Company Q.P.S.C (DSM:MPHC) Appear To Be Weighed Down

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. Having said that, from a first glance at Mesaieed Petrochemical Holding Company Q.P.S.C (DSM:MPHC) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. 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)

0.068 = ر.ق1.1b ÷ (ر.ق17b - ر.ق443m) (Based on the trailing twelve months to September 2023).

Therefore, Mesaieed Petrochemical Holding Company Q.P.S.C has an ROCE of 6.8%. On its own, that's a low figure but it's around the 7.9% average 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'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.

The Trend Of ROCE

Over the past five years, Mesaieed Petrochemical Holding Company Q.P.S.C's ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Mesaieed Petrochemical Holding Company Q.P.S.C to be a multi-bagger going forward.

What We Can Learn From Mesaieed Petrochemical Holding Company Q.P.S.C's ROCE

In a nutshell, Mesaieed Petrochemical Holding Company Q.P.S.C has been trudging along with the same returns from the same amount of capital over the last five years. And investors may be recognizing these trends since the stock has only returned a total of 22% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

On a separate note, we've found 1 warning sign for Mesaieed Petrochemical Holding Company Q.P.S.C you'll probably want to know about.

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.