Empresas La Polar (SNSE:NUEVAPOLAR) Is Looking To Continue Growing Its Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Empresas La Polar's (SNSE:NUEVAPOLAR) returns on capital, so let's have a look.

Understanding 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. The formula for this calculation on Empresas La Polar is:

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

0.055 = CL$15b ÷ (CL$369b - CL$100b) (Based on the trailing twelve months to March 2021).

Thus, Empresas La Polar has an ROCE of 5.5%. On its own that's a low return, but compared to the average of 3.5% generated by the Multiline Retail industry, it's much better.

See our latest analysis for Empresas La Polar

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 Empresas La Polar's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

The fact that Empresas La Polar is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 5.5% on its capital. In addition to that, Empresas La Polar is employing 29% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

What We Can Learn From Empresas La Polar's ROCE

To the delight of most shareholders, Empresas La Polar has now broken into profitability. Given the stock has declined 60% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

On a separate note, we've found 2 warning signs for Empresas La Polar you'll probably want to know about.

While Empresas La Polar 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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