Investors Could Be Concerned With Grupo Carso. de's (BMV:GCARSOA1) Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Grupo Carso. de (BMV:GCARSOA1) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Grupo Carso. de:

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

0.06 = Mex$8.4b ÷ (Mex$171b - Mex$31b) (Based on the trailing twelve months to March 2021).

So, Grupo Carso. de has an ROCE of 6.0%. On its own that's a low return, but compared to the average of 4.8% generated by the Industrials industry, it's much better.

Check out our latest analysis for Grupo Carso. de

Above you can see how the current ROCE for Grupo Carso. de 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 Grupo Carso. de here for free.

So How Is Grupo Carso. de's ROCE Trending?

On the surface, the trend of ROCE at Grupo Carso. de doesn't inspire confidence. Over the last five years, returns on capital have decreased to 6.0% from 15% five years ago. However it looks like Grupo Carso. de might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From Grupo Carso. de's ROCE

Bringing it all together, while we're somewhat encouraged by Grupo Carso. de's reinvestment in its own business, we're aware that returns are shrinking. And in the last five years, the stock has given away 22% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Grupo Carso. de could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

While Grupo Carso. de 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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