Stock Analysis

What We Make Of Vodafone Qatar P.Q.S.C's (DSM:VFQS) Returns On Capital

DSM:VFQS
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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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. 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.

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)

0.045 = ر.ق248m ÷ (ر.ق6.8b - ر.ق1.3b) (Based on the trailing twelve months to December 2020).

So, Vodafone Qatar P.Q.S.C has an ROCE of 4.5%. Ultimately, that's a low return and it under-performs the Wireless Telecom industry average of 8.2%.

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

roce
DSM:VFQS Return on Capital Employed February 10th 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 4.5%, which is always encouraging. While returns have increased, the amount of capital employed by Vodafone Qatar P.Q.S.C has remained flat over the period. 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.

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. Astute investors may have an opportunity here because the stock has declined 21% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing, we've spotted 1 warning sign facing Vodafone Qatar P.Q.S.C that you might find interesting.

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.

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This article by Simply Wall St is general in nature. 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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