The Returns At Fomento Económico Mexicano. de (BMV:FEMSAUBD) Aren't Growing

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Fomento Económico Mexicano. de (BMV:FEMSAUBD), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested 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)

0.095 = Mex$54b ÷ (Mex$734b - Mex$164b) (Based on the trailing twelve months to June 2022).

Thus, Fomento Económico Mexicano. de has an ROCE of 9.5%. In absolute terms, that's a low return and it also under-performs the Beverage industry average of 13%.

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'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?

There are better returns on capital out there than what we're seeing at Fomento Económico Mexicano. de. Over the past five years, ROCE has remained relatively flat at around 9.5% and the business has deployed 30% more capital into its operations. 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.

What We Can Learn From 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. And in the last five years, the stock has given away 22% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Fomento Económico Mexicano. de has the makings of a multi-bagger.

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.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.