Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at Arca Continental. de's (BMV:AC) ROCE trend, we were pretty happy with what we saw.
Return On Capital Employed (ROCE): What is it?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Arca Continental. de:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = Mex$27b ÷ (Mex$260b - Mex$41b) (Based on the trailing twelve months to March 2022).
Thus, Arca Continental. de has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 13% generated by the Beverage industry.
See our latest analysis for Arca Continental. de
In the above chart we have measured Arca Continental. de's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What Can We Tell From Arca Continental. de's ROCE Trend?
While the returns on capital are good, they haven't moved much. The company has consistently earned 12% for the last five years, and the capital employed within the business has risen 92% in that time. 12% is a pretty standard return, and it provides some comfort knowing that Arca Continental. de has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
What We Can Learn From Arca Continental. de's ROCE
The main thing to remember is that Arca Continental. de has proven its ability to continually reinvest at respectable rates of return. And given the stock has only risen 12% over the last five years, we'd suspect the market is beginning to recognize these trends. So to determine if Arca Continental. de is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.
Like most companies, Arca Continental. de does come with some risks, and we've found 1 warning sign that you should be aware of.
While Arca Continental. 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.
About BMV:AC *
Arca Continental. de
Produces, distributes, and sells soft drinks in Mexico, Peru, the United States, Argentina, and Ecuador.
Very undervalued with excellent balance sheet and pays a dividend.
