Capital Allocation Trends At Qatar National Cement Company (Q.P.S.C.) (DSM:QNCD) Aren't Ideal

To avoid investing in a business that's in decline, there's a few financial metrics that can provide early indications of aging. 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. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. And from a first read, things don't look too good at Qatar National Cement Company (Q.P.S.C.) (DSM:QNCD), so let's see why.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Qatar National Cement Company (Q.P.S.C.), this is the formula:

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

0.059 = ر.ق187m ÷ (ر.ق3.4b - ر.ق217m) (Based on the trailing twelve months to September 2022).

Therefore, Qatar National Cement Company (Q.P.S.C.) has an ROCE of 5.9%. Ultimately, that's a low return and it under-performs the Basic Materials industry average of 8.2%.

Check out our latest analysis for Qatar National Cement Company (Q.P.S.C.)

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

So How Is Qatar National Cement Company (Q.P.S.C.)'s ROCE Trending?

In terms of Qatar National Cement Company (Q.P.S.C.)'s historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 9.6% 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. If these trends continue, we wouldn't expect Qatar National Cement Company (Q.P.S.C.) to turn into a multi-bagger.

In Conclusion...

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Despite the concerning underlying trends, the stock has actually gained 10.0% over the last five years, so it might be that the investors are expecting the trends to reverse. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

If you want to know some of the risks facing Qatar National Cement Company (Q.P.S.C.) we've found 2 warning signs (1 can't be ignored!) that you should be aware of before investing here.

While Qatar National Cement Company (Q.P.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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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.