We Like These Underlying Return On Capital Trends At Compañía Industrial El Volcán (SNSE:VOLCAN)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. With that in mind, we've noticed some promising trends at Compañía Industrial El Volcán (SNSE:VOLCAN) so let's look a bit deeper.

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. The formula for this calculation on Compañía Industrial El Volcán is:

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

0.10 = CL$26b ÷ (CL$288b - CL$29b) (Based on the trailing twelve months to December 2020).

Thus, Compañía Industrial El Volcán has an ROCE of 10%. On its own, that's a standard return, however it's much better than the 8.2% generated by the Basic Materials industry.

See our latest analysis for Compañía Industrial El Volcán

In the above chart we have measured Compañía Industrial El Volcán's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Compañía Industrial El Volcán here for free.

What Can We Tell From Compañía Industrial El Volcán's ROCE Trend?

Investors would be pleased with what's happening at Compañía Industrial El Volcán. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 10%. Basically the business is earning more per dollar of capital invested and in addition to that, 69% more capital is being employed now too. So we're very much inspired by what we're seeing at Compañía Industrial El Volcán thanks to its ability to profitably reinvest capital.

The Bottom Line On Compañía Industrial El Volcán's ROCE

In summary, it's great to see that Compañía Industrial El Volcán can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has only returned 38% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Compañía Industrial El Volcán does have some risks though, and we've spotted 1 warning sign for Compañía Industrial El Volcán that you might be interested in.

While Compañía Industrial El Volcán 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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