Qatar Electricity & Water Company Q.P.S.C (DSM:QEWS) Will Be Hoping To Turn Its Returns On Capital Around

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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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 briefly looking over the numbers, we don't think Qatar Electricity & Water Company Q.P.S.C (DSM:QEWS) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

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

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

0.041 = ر.ق806m ÷ (ر.ق23b - ر.ق2.9b) (Based on the trailing twelve months to March 2024).

So, Qatar Electricity & Water Company Q.P.S.C has an ROCE of 4.1%. Ultimately, that's a low return and it under-performs the Integrated Utilities industry average of 5.6%.

See 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're interested, you can view the analysts predictions in our free analyst report for Qatar Electricity & Water Company Q.P.S.C .

What Can We Tell From Qatar Electricity & Water Company Q.P.S.C's ROCE Trend?

In terms of Qatar Electricity & Water Company Q.P.S.C's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 6.0%, but since then they've fallen to 4.1%. 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

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 investors may be recognizing these trends since the stock has only returned a total of 32% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

On a separate note, we've found 1 warning sign for Qatar Electricity & Water Company Q.P.S.C you'll probably want to know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com