Qatari Investors Group Q.S.C (DSM:QIGD) Will Be Looking To Turn Around Its Returns

What underlying fundamental trends can indicate that a company might be in decline? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base 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. And from a first read, things don't look too good at Qatari Investors Group Q.S.C (DSM:QIGD), so let's see why.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Qatari Investors Group Q.S.C is:

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

0.039 = ر.ق158m ÷ (ر.ق4.6b - ر.ق536m) (Based on the trailing twelve months to March 2021).

So, Qatari Investors Group Q.S.C has an ROCE of 3.9%. In absolute terms, that's a low return and it also under-performs the Basic Materials industry average of 9.8%.

See our latest analysis for Qatari Investors Group Q.S.C

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Qatari Investors Group Q.S.C's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Qatari Investors Group Q.S.C's ROCE Trend?

We are a bit worried about the trend of returns on capital at Qatari Investors Group Q.S.C. About five years ago, returns on capital were 6.9%, however they're now substantially lower than that as we saw above. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. 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.S.C to turn into a multi-bagger.

Our Take On Qatari Investors Group Q.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. Long term shareholders who've owned the stock over the last five years have experienced a 40% depreciation in their investment, so it appears the market might not like these trends either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

One final note, you should learn about the 3 warning signs we've spotted with Qatari Investors Group Q.S.C (including 2 which don't sit too well with us) .

While Qatari Investors Group Q.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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