We Like These Underlying Return On Capital Trends At Cementos Molins (BDM:CMO)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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 Cementos Molins' (BDM:CMO) returns on capital, so let's have a look.

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. The formula for this calculation on Cementos Molins is:

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

0.067 = €74m ÷ (€1.4b - €272m) (Based on the trailing twelve months to December 2020).

Therefore, Cementos Molins has an ROCE of 6.7%. In absolute terms, that's a low return but it's around the Basic Materials industry average of 7.8%.

Check out our latest analysis for Cementos Molins

In the above chart we have measured Cementos Molins' 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 Cementos Molins here for free.

What Can We Tell From Cementos Molins' ROCE Trend?

Cementos Molins is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 60% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On Cementos Molins' ROCE

To bring it all together, Cementos Molins has done well to increase the returns it's generating from its capital employed. Since the stock has returned a solid 73% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Cementos Molins can keep these trends up, it could have a bright future ahead.

While Cementos Molins looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether CMO is currently trading for a fair price.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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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