Fomento Económico Mexicano. de (BMV:FEMSAUBD) Hasn't Managed To Accelerate Its Returns

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. Having said that, from a first glance at Fomento Económico Mexicano. de (BMV:FEMSAUBD) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Fomento Económico Mexicano. de:

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

0.078 = Mex$48b ÷ (Mex$820b - Mex$204b) (Based on the trailing twelve months to June 2024).

Therefore, Fomento Económico Mexicano. de has an ROCE of 7.8%. In absolute terms, that's a low return and it also under-performs the Beverage industry average of 11%.

View our latest analysis for Fomento Económico Mexicano. de

Above you can see how the current ROCE for Fomento Económico Mexicano. de compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Fomento Económico Mexicano. de for free.

How Are Returns Trending?

There are better returns on capital out there than what we're seeing at Fomento Económico Mexicano. de. The company has employed 22% more capital in the last five years, and the returns on that capital have remained stable at 7.8%. 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.

Our Take On Fomento Económico Mexicano. de's ROCE

In summary, Fomento Económico Mexicano. de has simply been reinvesting capital and generating the same low rate of return as before. Unsurprisingly, the stock has only gained 32% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

While Fomento Económico Mexicano. de doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for FEMSA UBD on our platform.

While Fomento Económico Mexicano. 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.