Stock Analysis

Vodafone Qatar P.Q.S.C's (DSM:VFQS) Returns On Capital Are Heading Higher

DSM:VFQS
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There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Vodafone Qatar P.Q.S.C (DSM:VFQS) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

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. 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)

0.055 = ر.ق298m ÷ (ر.ق6.7b - ر.ق1.3b) (Based on the trailing twelve months to September 2021).

Thus, Vodafone Qatar P.Q.S.C has an ROCE of 5.5%. Ultimately, that's a low return and it under-performs the Wireless Telecom industry average of 8.6%.

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

roce
DSM:VFQS Return on Capital Employed October 28th 2021

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.

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

Shareholders will be relieved that Vodafone Qatar P.Q.S.C has 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 5.5%, 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. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.

The Bottom Line On Vodafone Qatar P.Q.S.C's ROCE

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. And since the stock has fallen 13% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to continue researching Vodafone Qatar P.Q.S.C, you might be interested to know about the 1 warning sign that our analysis has discovered.

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.

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.

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