Stock Analysis

There's Been No Shortage Of Growth Recently For Qatar Cinema and Film Distribution (Q.P.S.C)'s (DSM:QCFS) Returns On Capital

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What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Qatar Cinema and Film Distribution (Q.P.S.C) (DSM:QCFS) so let's look a bit deeper.

Understanding 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. Analysts use this formula to calculate it for Qatar Cinema and Film Distribution (Q.P.S.C):

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

0.035 = ر.ق4.6m ÷ (ر.ق146m - ر.ق12m) (Based on the trailing twelve months to March 2024).

Thus, Qatar Cinema and Film Distribution (Q.P.S.C) has an ROCE of 3.5%. In absolute terms, that's a low return and it also under-performs the Entertainment industry average of 7.7%.

Check out our latest analysis for Qatar Cinema and Film Distribution (Q.P.S.C)

DSM:QCFS Return on Capital Employed June 12th 2024

Historical performance is a great place to start when researching a stock so above you can see the gauge for Qatar Cinema and Film Distribution (Q.P.S.C)'s ROCE against it's prior returns. If you'd like to look at how Qatar Cinema and Film Distribution (Q.P.S.C) has performed in the past in other metrics, you can view this free graph of Qatar Cinema and Film Distribution (Q.P.S.C)'s past earnings, revenue and cash flow.

What Can We Tell From Qatar Cinema and Film Distribution (Q.P.S.C)'s ROCE Trend?

We're delighted to see that Qatar Cinema and Film Distribution (Q.P.S.C) is reaping rewards from its investments and has now broken into profitability. The company now earns 3.5% on its capital, because five years ago it was incurring losses. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

The Key Takeaway

To sum it up, Qatar Cinema and Film Distribution (Q.P.S.C) is collecting higher returns from the same amount of capital, and that's impressive. And with a respectable 45% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Qatar Cinema and Film Distribution (Q.P.S.C) can keep these trends up, it could have a bright future ahead.

Qatar Cinema and Film Distribution (Q.P.S.C) does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is concerning...

While Qatar Cinema and Film Distribution (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.

Valuation is complex, but we're helping make it simple.

Find out whether Qatar Cinema and Film Distribution (Q.P.S.C) is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.