Some Investors May Be Worried About Qatar Electricity & Water Company Q.P.S.C's (DSM:QEWS) Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. 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 Electricity & Water Company Q.P.S.C (DSM:QEWS), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)

0.034 = ر.ق757m ÷ (ر.ق25b - ر.ق2.7b) (Based on the trailing twelve months to September 2023).

Thus, Qatar Electricity & Water Company Q.P.S.C has an ROCE of 3.4%. In absolute terms, that's a low return and it also under-performs the Integrated Utilities industry average of 5.0%.

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 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. Around five years ago the returns on capital were 5.7%, but since then they've fallen to 3.4%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

In Conclusion...

While returns have fallen for Qatar Electricity & Water Company Q.P.S.C in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. In light of this, the stock has only gained 19% over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

If you want to continue researching Qatar Electricity & Water Company Q.P.S.C, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Qatar Electricity & Water Company Q.P.S.C may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.