Qatar Navigation Q.P.S.C (DSM:QNNS) Could Be At Risk Of Shrinking As A Company

When researching a stock for investment, what can tell us that the company is in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This indicates the company is producing less profit from its investments and its total assets are decreasing. In light of that, from a first glance at Qatar Navigation Q.P.S.C (DSM:QNNS), we've spotted some signs that it could be struggling, so let's investigate.

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. 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)

0.013 = ر.ق210m ÷ (ر.ق17b - ر.ق1.4b) (Based on the trailing twelve months to March 2021).

Therefore, Qatar Navigation Q.P.S.C has an ROCE of 1.3%. Ultimately, that's a low return and it under-performs the Shipping industry average of 4.7%.

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

Above you can see how the current ROCE for Qatar Navigation Q.P.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 to see what analysts are forecasting going forward, you should check out our free report for Qatar Navigation Q.P.S.C.

What The Trend Of ROCE Can Tell Us

In terms of Qatar Navigation Q.P.S.C's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 4.7%, however they're now substantially lower than that as we saw above. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Qatar Navigation Q.P.S.C becoming one if things continue as they have.

In Conclusion...

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. In spite of that, the stock has delivered a 9.5% return to shareholders who held over the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

On a separate note, we've found 3 warning signs for Qatar Navigation Q.P.S.C you'll probably want to know about.

While Qatar Navigation 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. 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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