Cencosud (SNSE:CENCOSUD) Is Looking To Continue Growing Its Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. So on that note, Cencosud (SNSE:CENCOSUD) looks quite promising in regards to its trends of return on capital.

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

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 Cencosud is:

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

0.094 = CL$1t ÷ (CL$15t - CL$4.4t) (Based on the trailing twelve months to March 2024).

Thus, Cencosud has an ROCE of 9.4%. In absolute terms, that's a low return but it's around the Consumer Retailing industry average of 11%.

View our latest analysis for Cencosud

Above you can see how the current ROCE for Cencosud compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Cencosud .

What Does the ROCE Trend For Cencosud Tell Us?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 9.4%. The amount of capital employed has increased too, by 24%. So we're very much inspired by what we're seeing at Cencosud thanks to its ability to profitably reinvest capital.

Our Take On Cencosud's ROCE

All in all, it's terrific to see that Cencosud is reaping the rewards from prior investments and is growing its capital base. And with a respectable 89% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Like most companies, Cencosud does come with some risks, and we've found 4 warning signs that you should be aware of.

While Cencosud 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.