We Like These Underlying Return On Capital Trends At Vodafone Qatar P.Q.S.C (DSM:VFQS)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. 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.

What Is Return On Capital Employed (ROCE)?

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)

0.12 = ر.ق655m ÷ (ر.ق7.3b - ر.ق1.6b) (Based on the trailing twelve months to December 2023).

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'd like, you can check out the forecasts from the analysts covering Vodafone Qatar P.Q.S.C for free.

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

Vodafone Qatar P.Q.S.C is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 271% 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. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line 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. Since the stock has returned a solid 46% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 1 warning sign with Vodafone Qatar P.Q.S.C and understanding this should be part of your investment process.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.