Here's What To Make Of Gulf Warehousing Company Q.P.S.C's (DSM:GWCS) Decelerating Rates Of Return

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. Although, when we looked at Gulf Warehousing Company Q.P.S.C (DSM:GWCS), it didn't seem to tick all of these boxes.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Gulf Warehousing Company Q.P.S.C, this is the formula:

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

0.081 = ر.ق307m ÷ (ر.ق4.8b - ر.ق996m) (Based on the trailing twelve months to December 2022).

Therefore, Gulf Warehousing Company Q.P.S.C has an ROCE of 8.1%. In absolute terms, that's a low return but it's around the Logistics industry average of 8.5%.

See our latest analysis for Gulf Warehousing Company Q.P.S.C

In the above chart we have measured Gulf Warehousing Company Q.P.S.C's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Gulf Warehousing Company Q.P.S.C here for free.

SWOT Analysis for Gulf Warehousing Company Q.P.S.C

What The Trend Of ROCE Can Tell Us

Over the past five years, Gulf Warehousing Company Q.P.S.C's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Gulf Warehousing Company Q.P.S.C to be a multi-bagger going forward. This probably explains why Gulf Warehousing Company Q.P.S.C is paying out 33% of its income to shareholders in the form of dividends. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.

The Key Takeaway

In a nutshell, Gulf Warehousing Company Q.P.S.C has been trudging along with the same returns from the same amount of capital over the last five years. Unsurprisingly then, the total return to shareholders over the last five years has been flat. Therefore based on the analysis done in this article, we don't think Gulf Warehousing Company Q.P.S.C has the makings of a multi-bagger.

One more thing to note, we've identified 2 warning signs with Gulf Warehousing Company Q.P.S.C and understanding them should be part of your investment process.

While Gulf Warehousing Company Q.P.S.C isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.