Returns At Aguas Andinas (SNSE:AGUAS-A) Appear To Be Weighed Down

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. That's why when we briefly looked at Aguas Andinas' (SNSE:AGUAS-A) ROCE trend, we were pretty happy with what we saw.

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

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. To calculate this metric for Aguas Andinas, this is the formula:

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

0.12 = CL$244b ÷ (CL$2.4t - CL$362b) (Based on the trailing twelve months to December 2023).

So, Aguas Andinas has an ROCE of 12%. That's a pretty standard return and it's in line with the industry average of 12%.

View our latest analysis for Aguas Andinas

Above you can see how the current ROCE for Aguas Andinas compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Aguas Andinas for free.

What Can We Tell From Aguas Andinas' ROCE Trend?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 24% more capital in the last five years, and the returns on that capital have remained stable at 12%. 12% is a pretty standard return, and it provides some comfort knowing that Aguas Andinas has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line On Aguas Andinas' ROCE

The main thing to remember is that Aguas Andinas has proven its ability to continually reinvest at respectable rates of return. However, over the last five years, the stock has only delivered a 3.2% return to shareholders who held over that period. So to determine if Aguas Andinas is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

One more thing: We've identified 2 warning signs with Aguas Andinas (at least 1 which is a bit unpleasant) , and understanding these would certainly be useful.

While Aguas Andinas 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.