Here's What To Make Of Cristalerías de Chile's (SNSE:CRISTALES) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Cristalerías de Chile (SNSE:CRISTALES), it didn't seem to tick all of these boxes.

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. To calculate this metric for Cristalerías de Chile, this is the formula:

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

0.052 = CL$31b ÷ (CL$665b - CL$80b) (Based on the trailing twelve months to December 2020).

So, Cristalerías de Chile has an ROCE of 5.2%. In absolute terms, that's a low return and it also under-performs the Packaging industry average of 9.0%.

See our latest analysis for Cristalerías de Chile

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'd like to look at how Cristalerías de Chile has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Cristalerías de Chile's ROCE Trending?

In terms of Cristalerías de Chile's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 10% over the last five years. However it looks like Cristalerías de Chile might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Key Takeaway

Bringing it all together, while we're somewhat encouraged by Cristalerías de Chile's reinvestment in its own business, we're aware that returns are shrinking. Unsurprisingly, the stock has only gained 2.9% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you'd like to know more about Cristalerías de Chile, we've spotted 3 warning signs, and 2 of them shouldn't be ignored.

While Cristalerías de Chile may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.
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