Returns On Capital At Empresa Constructora Moller y Pérez Cotapos (SNSE:MOLLER) Paint An Interesting Picture

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. 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 Empresa Constructora Moller y Pérez Cotapos (SNSE:MOLLER), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What is it?

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 Empresa Constructora Moller y Pérez Cotapos:

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

0.04 = CL$6.5b ÷ (CL$424b - CL$259b) (Based on the trailing twelve months to September 2020).

So, Empresa Constructora Moller y Pérez Cotapos has an ROCE of 4.0%. On its own that's a low return on capital but it's in line with the industry's average returns of 3.8%.

Check out our latest analysis for Empresa Constructora Moller y Pérez Cotapos

Historical performance is a great place to start when researching a stock so above you can see the gauge for Empresa Constructora Moller y Pérez Cotapos' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Empresa Constructora Moller y Pérez Cotapos, check out these free graphs here.

What Can We Tell From Empresa Constructora Moller y Pérez Cotapos' ROCE Trend?

On the surface, the trend of ROCE at Empresa Constructora Moller y Pérez Cotapos doesn't inspire confidence. To be more specific, ROCE has fallen from 12% over the last five years. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

While on the subject, we noticed that the ratio of current liabilities to total assets has risen to 61%, which has impacted the ROCE. Without this increase, it's likely that ROCE would be even lower than 4.0%. And with current liabilities at these levels, suppliers or short-term creditors are effectively funding a large part of the business, which can introduce some risks.

Our Take On Empresa Constructora Moller y Pérez Cotapos' ROCE

In summary, we're somewhat concerned by Empresa Constructora Moller y Pérez Cotapos' diminishing returns on increasing amounts of capital. Since the stock has skyrocketed 146% over the last five years, it looks like investors have high expectations of the stock. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

On a final note, we found 3 warning signs for Empresa Constructora Moller y Pérez Cotapos (1 is significant) 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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