Qatari Investors Group Q.P.S.C (DSM:QIGD) May Have Issues Allocating Its Capital

What underlying fundamental trends can indicate that a company might be in decline? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. 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. In light of that, from a first glance at Qatari Investors Group Q.P.S.C (DSM:QIGD), we've spotted some signs that it could be struggling, so let's investigate.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Qatari Investors Group Q.P.S.C is:

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

0.055 = ر.ق222m ÷ (ر.ق4.6b - ر.ق624m) (Based on the trailing twelve months to March 2023).

Thus, Qatari Investors Group Q.P.S.C has an ROCE of 5.5%. In absolute terms, that's a low return and it also under-performs the Basic Materials industry average of 7.5%.

Check out our latest analysis for Qatari Investors Group Q.P.S.C

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

What The Trend Of ROCE Can Tell Us

There is reason to be cautious about Qatari Investors Group Q.P.S.C, given the returns are trending downwards. About five years ago, returns on capital were 7.3%, however they're now substantially lower than that as we saw above. Meanwhile, capital employed in the business has stayed roughly the flat over the period. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect Qatari Investors Group Q.P.S.C to turn into a multi-bagger.

Our Take On Qatari Investors Group Q.P.S.C's ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. It should come as no surprise then that the stock has fallen 13% over the last five years, so it looks like investors are recognizing these changes. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

On a final note, we found 4 warning signs for Qatari Investors Group Q.P.S.C (1 is a bit concerning) you should be aware of.

While Qatari Investors Group 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.