If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Corpovael. de (BMV:CADUA), it didn't seem to tick all of these boxes.
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. The formula for this calculation on Corpovael. de is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.043 = Mex$396m ÷ (Mex$10b - Mex$1.1b) (Based on the trailing twelve months to September 2021).
So, Corpovael. de has an ROCE of 4.3%. On its own, that's a low figure but it's around the 4.5% average generated by the Consumer Durables industry.
Check out our latest analysis for Corpovael. de
Above you can see how the current ROCE for Corpovael. de 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
On the surface, the trend of ROCE at Corpovael. de doesn't inspire confidence. Over the last five years, returns on capital have decreased to 4.3% from 14% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.
The Key Takeaway
In summary, despite lower returns in the short term, we're encouraged to see that Corpovael. de is reinvesting for growth and has higher sales as a result. But since the stock has dived 76% in the last five years, there could be other drivers that are influencing the business' outlook. Therefore, we'd suggest researching the stock further to uncover more about the business.
One more thing to note, we've identified 3 warning signs with Corpovael. de and understanding them should be part of your investment process.
While Corpovael. 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.
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About BMV:CADU A
Corpovael. de
Engages in the design, urbanization, construction, promotion, and sale of homes in Mexico.
Undervalued with excellent balance sheet.
