Slowing Rates Of Return At Viña Concha y Toro (SNSE:CONCHATORO) Leave Little Room For Excitement

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. However, after investigating Viña Concha y Toro (SNSE:CONCHATORO), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

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 Viña Concha y Toro is:

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

0.071 = CL$85b ÷ (CL$1.7t - CL$459b) (Based on the trailing twelve months to March 2024).

Thus, Viña Concha y Toro has an ROCE of 7.1%. On its own, that's a low figure but it's around the 7.7% average generated by the Beverage industry.

See our latest analysis for Viña Concha y Toro

In the above chart we have measured Viña Concha y Toro's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Viña Concha y Toro .

So How Is Viña Concha y Toro's ROCE Trending?

The returns on capital haven't changed much for Viña Concha y Toro in recent years. The company has consistently earned 7.1% for the last five years, and the capital employed within the business has risen 44% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

What We Can Learn From Viña Concha y Toro's ROCE

As we've seen above, Viña Concha y Toro's returns on capital haven't increased but it is reinvesting in the business. Unsurprisingly, the stock has only gained 0.8% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

One more thing to note, we've identified 1 warning sign with Viña Concha y Toro and understanding it should be part of your investment process.

While Viña Concha y Toro 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com