Slowing Rates Of Return At Qatar Navigation Q.P.S.C (DSM:QNNS) Leave Little Room For Excitement

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Qatar Navigation Q.P.S.C (DSM:QNNS), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

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)

0.029 = ر.ق487m ÷ (ر.ق18b - ر.ق1.6b) (Based on the trailing twelve months to December 2022).

Thus, Qatar Navigation Q.P.S.C has an ROCE of 2.9%. In absolute terms, that's a low return and it also under-performs the Shipping industry average of 11%.

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.

So How Is Qatar Navigation Q.P.S.C's ROCE Trending?

Over the past five years, Qatar Navigation Q.P.S.C's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Qatar Navigation Q.P.S.C to be a multi-bagger going forward. With fewer investment opportunities, it makes sense that Qatar Navigation Q.P.S.C has been paying out a decent 50% of its earnings to shareholders. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

The Bottom Line On Qatar Navigation Q.P.S.C's ROCE

We can conclude that in regards to Qatar Navigation Q.P.S.C's returns on capital employed and the trends, there isn't much change to report on. Yet to long term shareholders the stock has gifted them an incredible 104% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Qatar Navigation Q.P.S.C could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

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.