Returns Are Gaining Momentum At Inmobiliaria Manquehue (SNSE:MANQUEHUE)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Inmobiliaria Manquehue's (SNSE:MANQUEHUE) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Inmobiliaria Manquehue, this is the formula:

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

0.042 = CL$10b ÷ (CL$336b - CL$94b) (Based on the trailing twelve months to December 2021).

So, Inmobiliaria Manquehue has an ROCE of 4.2%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 17%.

View our latest analysis for Inmobiliaria Manquehue

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

What Can We Tell From Inmobiliaria Manquehue's ROCE Trend?

While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 112% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Key Takeaway

In summary, we're delighted to see that Inmobiliaria Manquehue has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Astute investors may have an opportunity here because the stock has declined 69% in the last three years. So researching this company further and determining whether or not these trends will continue seems justified.

One final note, you should learn about the 2 warning signs we've spotted with Inmobiliaria Manquehue (including 1 which is a bit concerning) .

While Inmobiliaria Manquehue 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.