What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 Grupo Carso. de (BMV:GCARSOA1) so let's look a bit deeper.
What Is 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. To calculate this metric for Grupo Carso. de, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = Mex$26b ÷ (Mex$237b - Mex$61b) (Based on the trailing twelve months to June 2023).
So, Grupo Carso. de has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 7.5% generated by the Industrials industry.
View our latest analysis for Grupo Carso. de
In the above chart we have measured Grupo Carso. de's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What Does the ROCE Trend For Grupo Carso. de Tell Us?
We like the trends that we're seeing from Grupo Carso. de. Over the last five years, returns on capital employed have risen substantially to 15%. Basically the business is earning more per dollar of capital invested and in addition to that, 80% more capital is being employed now too. So we're very much inspired by what we're seeing at Grupo Carso. de thanks to its ability to profitably reinvest capital.
Our Take On Grupo Carso. de's ROCE
In summary, it's great to see that Grupo Carso. de can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
One more thing to note, we've identified 1 warning sign with Grupo Carso. de and understanding this should be part of your investment process.
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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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.
About BMV:GCARSO A1
Grupo Carso. de
Engages in the commercial, industrial, infrastructure and construction, and energy sectors.
Excellent balance sheet with limited growth.
