Here's What Wal-Mart de México. de's (BMV:WALMEX) Strong Returns On Capital Mean

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Ergo, when we looked at the ROCE trends at Wal-Mart de México. de (BMV:WALMEX), we liked what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Wal-Mart de México. de:

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

0.26 = Mex$75b ÷ (Mex$439b - Mex$145b) (Based on the trailing twelve months to March 2024).

Therefore, Wal-Mart de México. de has an ROCE of 26%. In absolute terms that's a great return and it's even better than the Consumer Retailing industry average of 18%.

See our latest analysis for Wal-Mart de México. de

In the above chart we have measured Wal-Mart de México. de's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Wal-Mart de México. de .

So How Is Wal-Mart de México. de's ROCE Trending?

Wal-Mart de México. de deserves to be commended in regards to it's returns. The company has consistently earned 26% for the last five years, and the capital employed within the business has risen 47% in that time. Now considering ROCE is an attractive 26%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. You'll see this when looking at well operated businesses or favorable business models.

Our Take On Wal-Mart de México. de's ROCE

In short, we'd argue Wal-Mart de México. de has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. However, over the last five years, the stock has only delivered a 33% return to shareholders who held over that period. So to determine if Wal-Mart de México. de is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

One more thing to note, we've identified 1 warning sign with Wal-Mart de México. de and understanding it should be part of your investment process.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.