Returns On Capital Signal Tricky Times Ahead For Qatar Electricity & Water Company Q.P.S.C (DSM:QEWS)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Qatar Electricity & Water Company Q.P.S.C (DSM:QEWS) and its ROCE trend, we weren't exactly thrilled.

What Is 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. The formula for this calculation on Qatar Electricity & Water Company Q.P.S.C is:

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

0.038 = ر.ق814m ÷ (ر.ق27b - ر.ق5.3b) (Based on the trailing twelve months to September 2022).

Thus, Qatar Electricity & Water Company Q.P.S.C has an ROCE of 3.8%. On its own, that's a low figure but it's around the 4.7% average generated by the Integrated Utilities industry.

See 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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Qatar Electricity & Water Company Q.P.S.C Tell Us?

On the surface, the trend of ROCE at Qatar Electricity & Water Company Q.P.S.C doesn't inspire confidence. To be more specific, ROCE has fallen from 9.1% over the last five years. 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 may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

To conclude, we've found that Qatar Electricity & Water Company Q.P.S.C is reinvesting in the business, but returns have been falling. Unsurprisingly, the stock has only gained 23% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you want to know some of the risks facing Qatar Electricity & Water Company Q.P.S.C we've found 2 warning signs (1 is a bit unpleasant!) that you should be aware of before investing here.

While Qatar Electricity & Water Company 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. 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.