What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. 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 looked at CMR. de (BMV:CMRB) and its trend of ROCE, we really liked what we saw.
What Is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for CMR. de:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = Mex$253m ÷ (Mex$3.0b - Mex$1.1b) (Based on the trailing twelve months to June 2024).
So, CMR. de has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Hospitality industry average of 4.9% it's much better.
Check out our latest analysis for CMR. de
Historical performance is a great place to start when researching a stock so above you can see the gauge for CMR. de's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of CMR. de.
What The Trend Of ROCE Can Tell Us
We're pretty happy with how the ROCE has been trending at CMR. de. The data shows that returns on capital have increased by 3,256% over the trailing five years. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Speaking of capital employed, the company is actually utilizing 24% less than it was five years ago, which can be indicative of a business that's improving its efficiency. CMR. de may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.
Our Take On CMR. de's ROCE
From what we've seen above, CMR. de has managed to increase it's returns on capital all the while reducing it's capital base. Astute investors may have an opportunity here because the stock has declined 63% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for CMR. de (of which 2 shouldn't be ignored!) that you should know about.
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.
About BMV:CMR B
Good value with proven track record.
