Qatari Investors Group Q.S.C's (DSM:QIGD) Returns On Capital Not Reflecting Well On The Business

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. In light of that, from a first glance at Qatari Investors Group Q.S.C (DSM:QIGD), we've spotted some signs that it could be struggling, so let's investigate.

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. 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)

0.047 = ر.ق190m ÷ (ر.ق4.7b - ر.ق571m) (Based on the trailing twelve months to September 2021).

So, Qatari Investors Group Q.S.C has an ROCE of 4.7%. Ultimately, that's a low return and it under-performs the Basic Materials industry average of 10%.

See our latest analysis for Qatari Investors Group Q.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.S.C's ROCE against it's prior returns. 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 Does the ROCE Trend For Qatari Investors Group Q.S.C Tell Us?

There is reason to be cautious about Qatari Investors Group Q.S.C, given the returns are trending downwards. To be more specific, the ROCE was 7.0% five years ago, but since then it has dropped noticeably. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Qatari Investors Group Q.S.C becoming one if things continue as they have.

The Bottom Line

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Long term shareholders who've owned the stock over the last five years have experienced a 53% depreciation in their investment, so it appears the market might not like these trends either. 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 3 warning signs for Qatari Investors Group Q.S.C (1 is significant) you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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.

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