Viñedos Emiliana (SNSE:EMILIANA) May Have Issues Allocating Its Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. In light of that, when we looked at Viñedos Emiliana (SNSE:EMILIANA) and its ROCE trend, we weren't exactly thrilled.

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 Viñedos Emiliana is:

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

0.044 = CL$1.9b ÷ (CL$58b - CL$15b) (Based on the trailing twelve months to March 2021).

So, Viñedos Emiliana has an ROCE of 4.4%. Ultimately, that's a low return and it under-performs the Beverage industry average of 10%.

See our latest analysis for Viñedos Emiliana

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Viñedos Emiliana, check out these free graphs here.

So How Is Viñedos Emiliana's ROCE Trending?

In terms of Viñedos Emiliana's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 5.6% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

Our Take On Viñedos Emiliana's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Viñedos Emiliana is reinvesting for growth and has higher sales as a result. However, total returns to shareholders over the last five years have been flat, which could indicate these growth trends potentially aren't accounted for yet by investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

Viñedos Emiliana does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those is significant...

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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