If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. With that in mind, we've noticed some promising trends at Grupo Bafar. de (BMV:BAFARB) so let's look a bit deeper.
Return On Capital Employed (ROCE): What Is It?
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. To calculate this metric for Grupo Bafar. de, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = Mex$2.7b ÷ (Mex$27b - Mex$3.4b) (Based on the trailing twelve months to March 2023).
Therefore, Grupo Bafar. de has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 13% generated by the Food industry.
See our latest analysis for Grupo Bafar. de
Above you can see how the current ROCE for Grupo Bafar. de compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Grupo Bafar. de.
SWOT Analysis for Grupo Bafar. de
- Earnings growth over the past year exceeded the industry.
- Debt is well covered by earnings and cashflows.
- Dividend is low compared to the top 25% of dividend payers in the Food market.
- Current share price is above our estimate of fair value.
- Annual revenue is forecast to grow faster than the Mexican market.
- Paying a dividend but company has no free cash flows.
What The Trend Of ROCE Can Tell Us
Investors would be pleased with what's happening at Grupo Bafar. de. Over the last five years, returns on capital employed have risen substantially to 12%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 132%. So we're very much inspired by what we're seeing at Grupo Bafar. de thanks to its ability to profitably reinvest capital.
In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 13%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.
The Bottom Line
To sum it up, Grupo Bafar. de has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 131% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.
One final note, you should learn about the 3 warning signs we've spotted with Grupo Bafar. de (including 2 which are concerning) .
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:BAFAR B
Grupo Bafar. de
Grupo Bafar, S.A.B. de C.V. produces and sells food products in Mexico and internationally.
Outstanding track record with mediocre balance sheet.
