Stock Analysis

Vodafone Qatar P.Q.S.C (DSM:VFQS) Is Looking To Continue Growing Its Returns On Capital

DSM:VFQS
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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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. So on that note, Vodafone Qatar P.Q.S.C (DSM:VFQS) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)

0.079 = ر.ق427m ÷ (ر.ق6.8b - ر.ق1.4b) (Based on the trailing twelve months to June 2022).

Thus, Vodafone Qatar P.Q.S.C has an ROCE of 7.9%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.5%.

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

roce
DSM:VFQS Return on Capital Employed September 27th 2022

In the above chart we have measured Vodafone Qatar P.Q.S.C's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Vodafone Qatar P.Q.S.C's ROCE Trending?

We're delighted to see that Vodafone Qatar P.Q.S.C is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 7.9%, which is always encouraging. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

The Key Takeaway

To sum it up, Vodafone Qatar P.Q.S.C is collecting higher returns from the same amount of capital, and that's impressive. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 8.2% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

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.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.