Grupo Bimbo. de (BMV:BIMBOA) Is Experiencing Growth In Returns On Capital

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. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Grupo Bimbo. de (BMV:BIMBOA) and its trend of ROCE, we really liked what we saw.

What Is 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. Analysts use this formula to calculate it for Grupo Bimbo. de:

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

0.16 = Mex$38b ÷ (Mex$338b - Mex$95b) (Based on the trailing twelve months to March 2023).

Thus, Grupo Bimbo. de has an ROCE of 16%. That's a relatively normal return on capital, and it's around the 13% generated by the Food industry.

Check out our latest analysis for Grupo Bimbo. de

In the above chart we have measured Grupo Bimbo. 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 Grupo Bimbo. de here for free.

The Trend Of ROCE

The trends we've noticed at Grupo Bimbo. de are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 16%. Basically the business is earning more per dollar of capital invested and in addition to that, 22% more capital is being employed now too. So we're very much inspired by what we're seeing at Grupo Bimbo. de thanks to its ability to profitably reinvest capital.

In Conclusion...

In summary, it's great to see that Grupo Bimbo. de can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 176% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Grupo Bimbo. de can keep these trends up, it could have a bright future ahead.

Grupo Bimbo. de does have some risks, we noticed 2 warning signs (and 1 which is concerning) we think you should know about.

While Grupo Bimbo. 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.