Qatar National Cement Company (Q.P.S.C.) (DSM:QNCD) May Have Issues Allocating Its Capital

What financial metrics can indicate to us that a company is maturing or even in decline? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. In light of that, from a first glance at Qatar National Cement Company (Q.P.S.C.) (DSM:QNCD), 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 Qatar National Cement Company (Q.P.S.C.) is:

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

0.041 = ر.ق124m ÷ (ر.ق3.3b - ر.ق259m) (Based on the trailing twelve months to December 2020).

Thus, Qatar National Cement Company (Q.P.S.C.) has an ROCE of 4.1%. Ultimately, that's a low return and it under-performs the Basic Materials industry average of 9.3%.

See our latest analysis for Qatar National Cement Company (Q.P.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 want to delve into the historical earnings, revenue and cash flow of Qatar National Cement Company (Q.P.S.C.), check out these free graphs here.

What Does the ROCE Trend For Qatar National Cement Company (Q.P.S.C.) Tell Us?

There is reason to be cautious about Qatar National Cement Company (Q.P.S.C.), given the returns are trending downwards. About five years ago, returns on capital were 14%, 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. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Qatar National Cement Company (Q.P.S.C.) becoming one if things continue as they have.

The Bottom Line On Qatar National Cement Company (Q.P.S.C.)'s ROCE

In summary, it's unfortunate that Qatar National Cement Company (Q.P.S.C.) is generating lower returns from the same amount of capital. Investors haven't taken kindly to these developments, since the stock has declined 17% from where it was five years ago. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Qatar National Cement Company (Q.P.S.C.) (of which 1 can't be ignored!) that you should know about.

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.

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