The Return Trends At Soquimich Comercial (SNSE:SOQUICOM) Look Promising

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Soquimich Comercial (SNSE:SOQUICOM) looks quite promising in regards to its trends of return on capital.

What Is 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. The formula for this calculation on Soquimich Comercial is:

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

0.16 = US$12m ÷ (US$136m - US$66m) (Based on the trailing twelve months to September 2024).

So, Soquimich Comercial has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 11% it's much better.

Check out our latest analysis for Soquimich Comercial

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're interested in investigating Soquimich Comercial's past further, check out this free graph covering Soquimich Comercial's past earnings, revenue and cash flow.

How Are Returns Trending?

Soquimich Comercial has not disappointed in regards to ROCE growth. The data shows that returns on capital have increased by 69% over the trailing five years. The company is now earning US$0.2 per dollar of capital employed. In regards to capital employed, Soquimich Comercial appears to been achieving more with less, since the business is using 31% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 48% of the business, which is more than it was five years ago. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

What We Can Learn From Soquimich Comercial's ROCE

In a nutshell, we're pleased to see that Soquimich Comercial has been able to generate higher returns from less capital. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we found 2 warning signs for Soquimich Comercial (1 is concerning) you should be aware of.

While Soquimich Comercial 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.