Fomento Económico Mexicano. de (BMV:FEMSAUBD) Has More To Do To Multiply In Value Going Forward

What are the early trends we should look for to identify a stock that could 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Fomento Económico Mexicano. de (BMV:FEMSAUBD) and its ROCE trend, we weren't exactly thrilled.

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. The formula for this calculation on Fomento Económico Mexicano. de is:

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

0.089 = Mex$54b ÷ (Mex$744b - Mex$143b) (Based on the trailing twelve months to March 2022).

So, Fomento Económico Mexicano. de has an ROCE of 8.9%. In absolute terms, that's a low return and it also under-performs the Beverage industry average of 13%.

See our latest analysis for Fomento Económico Mexicano. de

In the above chart we have measured Fomento Económico Mexicano. 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 Fomento Económico Mexicano. de here for free.

So How Is Fomento Económico Mexicano. de's ROCE Trending?

In terms of Fomento Económico Mexicano. de's historical ROCE trend, it doesn't exactly demand attention. The company has employed 38% more capital in the last five years, and the returns on that capital have remained stable at 8.9%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

In conclusion, Fomento Económico Mexicano. de has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has declined 14% over the last five years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

If you're still interested in Fomento Económico Mexicano. de it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

While Fomento Económico Mexicano. de may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.