Returns Are Gaining Momentum At Empresas La Polar (SNSE:NUEVAPOLAR)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Empresas La Polar (SNSE:NUEVAPOLAR) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Empresas La Polar, this is the formula:

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

0.11 = CL$36b ÷ (CL$430b - CL$107b) (Based on the trailing twelve months to June 2022).

Thus, Empresas La Polar has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Multiline Retail industry average of 9.9%.

Check out the opportunities and risks within the XX Multiline Retail industry.

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.

So How Is Empresas La Polar's ROCE Trending?

The trends we've noticed at Empresas La Polar are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 11%. The amount of capital employed has increased too, by 46%. So we're very much inspired by what we're seeing at Empresas La Polar thanks to its ability to profitably reinvest capital.

The Bottom Line On Empresas La Polar's ROCE

To sum it up, Empresas La Polar has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Although the company may be facing some issues elsewhere since the stock has plunged 90% in the last five years. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

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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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.