Be Wary Of Qatar Electricity & Water Company Q.P.S.C (DSM:QEWS) And Its Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. However, after investigating Qatar Electricity & Water Company Q.P.S.C (DSM:QEWS), we don't think it's current trends fit the mold of a multi-bagger.

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 Electricity & Water Company Q.P.S.C:

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

0.041 = ر.ق622m ÷ (ر.ق19b - ر.ق3.4b) (Based on the trailing twelve months to September 2021).

So, Qatar Electricity & Water Company Q.P.S.C has an ROCE of 4.1%. In absolute terms, that's a low return but it's around the Integrated Utilities industry average of 4.7%.

View our latest analysis for Qatar Electricity & Water Company Q.P.S.C

Above you can see how the current ROCE for Qatar Electricity & Water Company 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 Electricity & Water Company Q.P.S.C.

How Are Returns Trending?

On the surface, the trend of ROCE at Qatar Electricity & Water Company Q.P.S.C doesn't inspire confidence. Over the last five years, returns on capital have decreased to 4.1% from 12% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On Qatar Electricity & Water Company Q.P.S.C's ROCE

Bringing it all together, while we're somewhat encouraged by Qatar Electricity & Water Company Q.P.S.C's reinvestment in its own business, we're aware that returns are shrinking. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

Like most companies, Qatar Electricity & Water Company Q.P.S.C does come with some risks, and we've found 1 warning sign that you should be aware of.

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.