We're Watching These Trends At Consorcio ARA S. A. B. de C. V (BMV:ARA)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Consorcio ARA S. A. B. de C. V (BMV:ARA), it didn't seem to tick all of these boxes.

Understanding 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. Analysts use this formula to calculate it for Consorcio ARA S. A. B. de C. V:

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

0.025 = Mex$451m ÷ (Mex$21b - Mex$2.5b) (Based on the trailing twelve months to September 2020).

Therefore, Consorcio ARA S. A. B. de C. V has an ROCE of 2.5%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 8.2%.

See our latest analysis for Consorcio ARA S. A. B. de C. V

Above you can see how the current ROCE for Consorcio ARA S. A. B. de C. V compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

When we looked at the ROCE trend at Consorcio ARA S. A. B. de C. V, we didn't gain much confidence. To be more specific, ROCE has fallen from 5.0% over the last five years. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

What We Can Learn From Consorcio ARA S. A. B. de C. V's ROCE

We're a bit apprehensive about Consorcio ARA S. A. B. de C. V because despite more capital being deployed in the business, returns on that capital and sales have both fallen. Investors haven't taken kindly to these developments, since the stock has declined 50% from where it was five years ago. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

Consorcio ARA S. A. B. de C. V does have some risks though, and we've spotted 1 warning sign for Consorcio ARA S. A. B. de C. V that you might be interested in.

While Consorcio ARA S. A. B. de C. V may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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