Vodafone Qatar P.Q.S.C (DSM:VFQS) Is Experiencing Growth In Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Vodafone Qatar P.Q.S.C (DSM:VFQS) so let's look a bit deeper.

Understanding 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. 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)

0.11 = ر.ق621m ÷ (ر.ق7.1b - ر.ق1.5b) (Based on the trailing twelve months to September 2023).

Thus, Vodafone Qatar P.Q.S.C has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 9.8% generated by the Wireless Telecom industry.

View our latest analysis for Vodafone Qatar P.Q.S.C

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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Vodafone Qatar P.Q.S.C's ROCE Trend?

Vodafone Qatar P.Q.S.C has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 547% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line

In summary, we're delighted to see that Vodafone Qatar P.Q.S.C has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 31% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you'd like to know about the risks facing Vodafone Qatar P.Q.S.C, we've discovered 1 warning sign that you should be aware of.

While Vodafone Qatar P.Q.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.