Our Take On The Returns On Capital At Gulf Warehousing Company Q.P.S.C (DSM:GWCS)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. In light of that, when we looked at Gulf Warehousing Company Q.P.S.C (DSM:GWCS) and its ROCE trend, we weren't exactly thrilled.

What is 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 Gulf Warehousing Company Q.P.S.C is:

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

0.085 = ر.ق297m ÷ (ر.ق4.1b - ر.ق578m) (Based on the trailing twelve months to December 2020).

Thus, Gulf Warehousing Company Q.P.S.C has an ROCE of 8.5%. Even though it's in line with the industry average of 7.7%, it's still a low return by itself.

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

Historical performance is a great place to start when researching a stock so above you can see the gauge for Gulf Warehousing Company Q.P.S.C's ROCE against it's prior returns. If you'd like to look at how Gulf Warehousing Company Q.P.S.C has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Gulf Warehousing Company Q.P.S.C Tell Us?

There are better returns on capital out there than what we're seeing at Gulf Warehousing Company Q.P.S.C. Over the past five years, ROCE has remained relatively flat at around 8.5% and the business has deployed 31% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

In Conclusion...

As we've seen above, Gulf Warehousing Company Q.P.S.C's returns on capital haven't increased but it is reinvesting in the business. Unsurprisingly, the stock has only gained 22% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

On a separate note, we've found 1 warning sign for Gulf Warehousing Company Q.P.S.C you'll probably want to know about.

While Gulf Warehousing Company Q.P.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.

When trading Gulf Warehousing Company Q.P.S.C or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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