Here's What To Make Of Grupo Mexicano de Desarrollo's (BMV:GMD) Decelerating Rates Of Return

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. So, when we ran our eye over Grupo Mexicano de Desarrollo's (BMV:GMD) trend of ROCE, we liked what we saw.

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. Analysts use this formula to calculate it for Grupo Mexicano de Desarrollo:

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

0.14 = Mex$1.3b ÷ (Mex$11b - Mex$1.4b) (Based on the trailing twelve months to September 2023).

So, Grupo Mexicano de Desarrollo has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 10% generated by the Construction industry.

Check out our latest analysis for Grupo Mexicano de Desarrollo

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Grupo Mexicano de Desarrollo has performed in the past in other metrics, you can view this free graph of Grupo Mexicano de Desarrollo's past earnings, revenue and cash flow.

The Trend Of ROCE

While the returns on capital are good, they haven't moved much. The company has consistently earned 14% for the last five years, and the capital employed within the business has risen 21% in that time. 14% is a pretty standard return, and it provides some comfort knowing that Grupo Mexicano de Desarrollo 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.

Our Take On Grupo Mexicano de Desarrollo's ROCE

The main thing to remember is that Grupo Mexicano de Desarrollo has proven its ability to continually reinvest at respectable rates of return. However, despite the favorable fundamentals, the stock has fallen 43% over the last five years, so there might be an opportunity here for astute investors. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

Like most companies, Grupo Mexicano de Desarrollo does come with some risks, and we've found 1 warning sign that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.