Fomento Económico Mexicano. de (BMV:FEMSAUBD) May Have Issues Allocating Its Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Although, when we looked at Fomento Económico Mexicano. de (BMV:FEMSAUBD), it didn't seem to tick all of these boxes.

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 Fomento Económico Mexicano. de, this is the formula:

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

0.094 = Mex$54b ÷ (Mex$742b - Mex$168b) (Based on the trailing twelve months to September 2022).

Therefore, Fomento Económico Mexicano. de has an ROCE of 9.4%. In absolute terms, that's a low return and it also under-performs the Beverage industry average of 13%.

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

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

When we looked at the ROCE trend at Fomento Económico Mexicano. de, we didn't gain much confidence. Around five years ago the returns on capital were 14%, but since then they've fallen to 9.4%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

Our Take On Fomento Económico Mexicano. de's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Fomento Económico Mexicano. de is reinvesting for growth and has higher sales as a result. However, total returns to shareholders over the last five years have been flat, which could indicate these growth trends potentially aren't accounted for yet by investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

Fomento Económico Mexicano. de could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

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.