Returns On Capital At Qatar National Cement Company (Q.P.S.C.) (DSM:QNCD) Paint A Concerning Picture

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. This indicates the company is producing less profit from its investments and its total assets are decreasing. 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. Analysts use this formula to calculate it for Qatar National Cement Company (Q.P.S.C.):

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

0.052 = ر.ق162m ÷ (ر.ق3.3b - ر.ق234m) (Based on the trailing twelve months to June 2023).

Therefore, Qatar National Cement Company (Q.P.S.C.) has an ROCE of 5.2%. Ultimately, that's a low return and it under-performs the Basic Materials industry average of 7.6%.

See 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 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 Can We Tell From Qatar National Cement Company (Q.P.S.C.)'s ROCE Trend?

In terms of Qatar National Cement Company (Q.P.S.C.)'s historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 8.7% that they were earning five years ago. Meanwhile, capital employed in the business has stayed roughly the flat over the period. 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 Qatar National Cement Company (Q.P.S.C.) to turn into a multi-bagger.

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

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. It should come as no surprise then that the stock has fallen 16% over the last five years, so it looks like investors are recognizing these changes. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

On a final note, we've found 2 warning signs for Qatar National Cement Company (Q.P.S.C.) that we think 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.

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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.