Corpovael. de (BMV:CADUA) Might Be Having Difficulty Using Its Capital Effectively

If you're looking for a multi-bagger, there's a few things to 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Corpovael. de (BMV:CADUA), we don't think it's current trends fit the mold of a multi-bagger.

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. The formula for this calculation on Corpovael. de is:

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

0.023 = Mex$205m ÷ (Mex$9.9b - Mex$1.2b) (Based on the trailing twelve months to March 2021).

So, Corpovael. de has an ROCE of 2.3%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 3.1%.

See our latest analysis for Corpovael. de

In the above chart we have measured Corpovael. de's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Corpovael. de here for free.

The Trend Of ROCE

When we looked at the ROCE trend at Corpovael. de, we didn't gain much confidence. Around five years ago the returns on capital were 14%, but since then they've fallen to 2.3%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

What We Can Learn From Corpovael. de's ROCE

We're a bit apprehensive about Corpovael. de because despite more capital being deployed in the business, returns on that capital and sales have both fallen. It should come as no surprise then that the stock has fallen 64% over the last five years, so it looks like investors are recognizing these changes. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

If you want to continue researching Corpovael. de, you might be interested to know about the 3 warning signs that our analysis has discovered.

While Corpovael. de 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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This article by Simply Wall St is general in nature. 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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