Here's What To Make Of Qatar Electricity & Water Company Q.P.S.C's (DSM:QEWS) Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Qatar Electricity & Water Company Q.P.S.C (DSM:QEWS) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from 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)

0.044 = ر.ق601m ÷ (ر.ق17b - ر.ق3.0b) (Based on the trailing twelve months to September 2020).

So, Qatar Electricity & Water Company Q.P.S.C has an ROCE of 4.4%. Even though it's in line with the industry average of 3.9%, it's still a low return by itself.

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

In the above chart we have measured Qatar Electricity & Water Company 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 Electricity & Water Company Q.P.S.C.

The Trend Of ROCE

In terms of Qatar Electricity & Water Company Q.P.S.C's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 10% over the last five years. However it looks like Qatar Electricity & Water Company Q.P.S.C might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

In summary, Qatar Electricity & Water Company Q.P.S.C is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And with the stock having returned a mere 2.7% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you'd like to know about the risks facing Qatar Electricity & Water Company Q.P.S.C, we've discovered 1 warning sign that you should be aware of.

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