Stock Analysis

There's Been No Shortage Of Growth Recently For Empresas Copec's (SNSE:COPEC) Returns On Capital

SNSE:COPEC
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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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Empresas Copec's (SNSE:COPEC) returns on capital, so let's have a look.

Understanding 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. Analysts use this formula to calculate it for Empresas Copec:

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

0.11 = US$2.5b ÷ (US$26b - US$3.4b) (Based on the trailing twelve months to December 2021).

So, Empresas Copec has an ROCE of 11%. That's a pretty standard return and it's in line with the industry average of 11%.

View our latest analysis for Empresas Copec

roce
SNSE:COPEC Return on Capital Employed March 28th 2022

In the above chart we have measured Empresas Copec's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Empresas Copec here for free.

What The Trend Of ROCE Can Tell Us

Empresas Copec has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 110% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line On Empresas Copec's ROCE

To bring it all together, Empresas Copec has done well to increase the returns it's generating from its capital employed. Considering the stock has delivered 6.8% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

Empresas Copec does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

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.

Valuation is complex, but we're helping make it simple.

Find out whether Empresas Copec is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.