Capital Allocation Trends At Qatar Navigation Q.P.S.C (DSM:QNNS) Aren't Ideal

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. On that note, looking into Qatar Navigation Q.P.S.C (DSM:QNNS), we weren't too upbeat about how things were going.

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. Analysts use this formula to calculate it for Qatar Navigation Q.P.S.C:

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

0.011 = ر.ق169m ÷ (ر.ق17b - ر.ق1.3b) (Based on the trailing twelve months to June 2021).

Therefore, Qatar Navigation Q.P.S.C has an ROCE of 1.1%. Ultimately, that's a low return and it under-performs the Shipping industry average of 6.1%.

View our latest analysis for Qatar Navigation Q.P.S.C

In the above chart we have measured Qatar Navigation Q.P.S.C's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Qatar Navigation Q.P.S.C.

How Are Returns Trending?

In terms of Qatar Navigation Q.P.S.C's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 4.2% five years ago, but since then it has dropped noticeably. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect Qatar Navigation Q.P.S.C to turn into a multi-bagger.

Our Take On Qatar Navigation Q.P.S.C's ROCE

In summary, it's unfortunate that Qatar Navigation Q.P.S.C is generating lower returns from the same amount of capital. In spite of that, the stock has delivered a 6.6% return to shareholders who held over the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

One more thing, we've spotted 3 warning signs facing Qatar Navigation Q.P.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. 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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