Should You Be Impressed By Sociedad Anónima Viña Santa Rita's (SNSE:SANTA RITA) Returns on Capital?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Sociedad Anónima Viña Santa Rita (SNSE:SANTA RITA), it didn't seem to tick all of these boxes.

What is 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. To calculate this metric for Sociedad Anónima Viña Santa Rita, this is the formula:

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

0.066 = CL$18b ÷ (CL$347b - CL$80b) (Based on the trailing twelve months to September 2020).

Therefore, Sociedad Anónima Viña Santa Rita has an ROCE of 6.6%. Ultimately, that's a low return and it under-performs the Beverage industry average of 9.7%.

Check out our latest analysis for Sociedad Anónima Viña Santa Rita

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 Sociedad Anónima Viña Santa Rita, check out these free graphs here.

What Does the ROCE Trend For Sociedad Anónima Viña Santa Rita Tell Us?

The returns on capital haven't changed much for Sociedad Anónima Viña Santa Rita in recent years. The company has consistently earned 6.6% for the last five years, and the capital employed within the business has risen 29% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

What We Can Learn From Sociedad Anónima Viña Santa Rita's ROCE

In summary, Sociedad Anónima Viña Santa Rita has simply been reinvesting capital and generating the same low rate of return as before. And investors may be recognizing these trends since the stock has only returned a total of 31% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

On a final note, we've found 2 warning signs for Sociedad Anónima Viña Santa Rita that we think you should be aware of.

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.

If you decide to trade Sociedad Anónima Viña Santa Rita, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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