Vodafone Qatar P.Q.S.C (DSM:VFQS) Might Have The Makings Of A Multi-Bagger

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Vodafone Qatar P.Q.S.C (DSM:VFQS) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Vodafone Qatar P.Q.S.C is:

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

0.12 = ر.ق697m ÷ (ر.ق7.1b - ر.ق1.3b) (Based on the trailing twelve months to September 2024).

Thus, Vodafone Qatar P.Q.S.C has an ROCE of 12%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Wireless Telecom industry average of 11%.

See 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 analyst report for Vodafone Qatar P.Q.S.C .

The Trend Of ROCE

Vodafone Qatar P.Q.S.C is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 196% in that same time. 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. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 18%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Vodafone Qatar P.Q.S.C has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

What We Can Learn From Vodafone Qatar P.Q.S.C's ROCE

To sum it up, Vodafone Qatar P.Q.S.C is collecting higher returns from the same amount of capital, and that's impressive. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 85% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

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.

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.