Sociedad Matriz SAAM (SNSE:SMSAAM) Is Looking To Continue Growing Its Returns On Capital

What are the early trends we should look for to identify a stock that could 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Sociedad Matriz SAAM (SNSE:SMSAAM) and its trend of ROCE, we really liked what we saw.

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. Analysts use this formula to calculate it for Sociedad Matriz SAAM:

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

0.072 = US$110m ÷ (US$1.8b - US$252m) (Based on the trailing twelve months to December 2020).

Thus, Sociedad Matriz SAAM has an ROCE of 7.2%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.1%.

View our latest analysis for Sociedad Matriz SAAM

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sociedad Matriz SAAM's ROCE against it's prior returns. If you'd like to look at how Sociedad Matriz SAAM has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 7.2%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 41%. So we're very much inspired by what we're seeing at Sociedad Matriz SAAM thanks to its ability to profitably reinvest capital.

In Conclusion...

To sum it up, Sociedad Matriz SAAM has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a solid 41% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we found 3 warning signs for Sociedad Matriz SAAM (1 doesn't sit too well with us) you should be aware of.

While Sociedad Matriz SAAM 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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