Returns On Capital Tell Us A Lot About Qatari Investors Group Q.S.C (DSM:QIGD)

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. 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. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. 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.

Understanding 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. Analysts use this formula to calculate it for Qatari Investors Group Q.S.C:

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

0.031 = ر.ق131m ÷ (ر.ق4.6b - ر.ق458m) (Based on the trailing twelve months to September 2020).

Therefore, Qatari Investors Group Q.S.C has an ROCE of 3.1%. Ultimately, that's a low return and it under-performs the Basic Materials industry average of 9.3%.

Check out 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?

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 6.6% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. 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.

In Conclusion...

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Investors haven't taken kindly to these developments, since the stock has declined 49% from where it was five years ago. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 5 warning signs for Qatari Investors Group Q.S.C (of which 2 are concerning!) that you should know about.

While Qatari Investors Group Q.S.C may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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