The Trend Of High Returns At Soquimich Comercial (SNSE:SOQUICOM) Has Us Very Interested

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. And in light of that, the trends we're seeing at Soquimich Comercial's (SNSE:SOQUICOM) look very promising so lets take a look.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Soquimich Comercial:

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

0.30 = US$21m ÷ (US$126m - US$55m) (Based on the trailing twelve months to December 2022).

Therefore, Soquimich Comercial has an ROCE of 30%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 22%.

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

So How Is Soquimich Comercial's ROCE Trending?

You'd find it hard not to be impressed with the ROCE trend at Soquimich Comercial. The data shows that returns on capital have increased by 975% over the trailing five years. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, Soquimich Comercial appears to been achieving more with less, since the business is using 43% 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. Essentially the business now has suppliers or short-term creditors funding about 44% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.

Our Take On Soquimich Comercial's ROCE

From what we've seen above, Soquimich Comercial has managed to increase it's returns on capital all the while reducing it's capital base. Since the stock has returned a staggering 318% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Soquimich Comercial does have some risks though, and we've spotted 2 warning signs for Soquimich Comercial that you might be interested in.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.