We Like These Underlying Return On Capital Trends At Mesaieed Petrochemical Holding Company Q.P.S.C (DSM:MPHC)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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.

Return On Capital Employed (ROCE): What Is It?

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)

0.12 = ر.ق1.9b ÷ (ر.ق17b - ر.ق429m) (Based on the trailing twelve months to March 2022).

Thus, Mesaieed Petrochemical Holding Company Q.P.S.C has an ROCE of 12%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Chemicals industry average of 11%.

Check out 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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

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 81% over the last five years. 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.

What We Can Learn From 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. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Mesaieed Petrochemical Holding Company Q.P.S.C can keep these trends up, it could have a bright future ahead.

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.