Investors Met With Slowing Returns on Capital At Grupo Bimbo. de (BMV:BIMBOA)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. 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 ran our eye over Grupo Bimbo. de's (BMV:BIMBOA) trend of ROCE, we liked what we saw.

What is Return On Capital Employed (ROCE)?

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 Grupo Bimbo. de:

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

0.13 = Mex$34b ÷ (Mex$338b - Mex$81b) (Based on the trailing twelve months to December 2021).

Therefore, Grupo Bimbo. de has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Food industry average of 11%.

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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Grupo Bimbo. de's ROCE Trending?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 13% for the last five years, and the capital employed within the business has risen 28% in that time. 13% is a pretty standard return, and it provides some comfort knowing that Grupo Bimbo. de has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

What We Can Learn From Grupo Bimbo. de's ROCE

To sum it up, Grupo Bimbo. de has simply been reinvesting capital steadily, at those decent rates of return. And given the stock has only risen 34% over the last five years, we'd suspect the market is beginning to recognize these trends. So to determine if Grupo Bimbo. de is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

Like most companies, Grupo Bimbo. de does come with some risks, and we've found 2 warning signs that you should be aware of.

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.