Quiñenco (SNSE:QUINENCO) Is Looking To Continue Growing Its Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Speaking of which, we noticed some great changes in Quiñenco's (SNSE:QUINENCO) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

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 Quiñenco:

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

0.056 = CL$1.7t ÷ (CL$69t - CL$38t) (Based on the trailing twelve months to September 2022).

Therefore, Quiñenco has an ROCE of 5.6%. On its own, that's a low figure but it's around the 6.5% average generated by the Industrials industry.

Check out our latest analysis for Quiñenco

Historical performance is a great place to start when researching a stock so above you can see the gauge for Quiñenco's ROCE against it's prior returns. If you're interested in investigating Quiñenco's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Quiñenco's ROCE Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 5.6%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 118%. So we're very much inspired by what we're seeing at Quiñenco thanks to its ability to profitably reinvest capital.

On a separate but related note, it's important to know that Quiñenco has a current liabilities to total assets ratio of 55%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

What We Can Learn From Quiñenco's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Quiñenco has. And a remarkable 120% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Quiñenco (of which 1 is concerning!) that you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.