Stock Analysis

Returns At Vodafone Qatar P.Q.S.C (DSM:VFQS) Are On The Way Up

DSM:VFQS
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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Vodafone Qatar P.Q.S.C's (DSM:VFQS) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Vodafone Qatar P.Q.S.C, this is the formula:

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

0.064 = ر.ق345m ÷ (ر.ق6.8b - ر.ق1.5b) (Based on the trailing twelve months to December 2021).

Therefore, Vodafone Qatar P.Q.S.C has an ROCE of 6.4%. On its own, that's a low figure but it's around the 8.0% average generated by the Wireless Telecom industry.

Check out our latest analysis for Vodafone Qatar P.Q.S.C

roce
DSM:VFQS Return on Capital Employed April 1st 2022

Above you can see how the current ROCE for Vodafone Qatar P.Q.S.C compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Vodafone Qatar P.Q.S.C here for free.

What Does the ROCE Trend For Vodafone Qatar P.Q.S.C Tell Us?

Vodafone Qatar P.Q.S.C has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 6.4% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Vodafone Qatar P.Q.S.C has remained flat over the period. 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. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

Our Take On Vodafone Qatar P.Q.S.C's ROCE

To bring it all together, Vodafone Qatar P.Q.S.C has done well to increase the returns it's generating from its capital employed. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Like most companies, Vodafone Qatar P.Q.S.C does come with some risks, and we've found 1 warning sign that 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.

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

Find out whether Vodafone Qatar P.Q.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.