Kimberly-Clark de México S. A. B. de C. V (BMV:KIMBERA) Knows How To Allocate Capital Effectively

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Kimberly-Clark de México S. A. B. de C. V (BMV:KIMBERA) looks great, so lets see what the trend can tell us.

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 Kimberly-Clark de México S. A. B. de C. V is:

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

0.33 = Mex$11b ÷ (Mex$56b - Mex$24b) (Based on the trailing twelve months to June 2023).

Thus, Kimberly-Clark de México S. A. B. de C. V has an ROCE of 33%. In absolute terms that's a great return and it's even better than the Household Products industry average of 9.9%.

Check out our latest analysis for Kimberly-Clark de México S. A. B. de C. V

In the above chart we have measured Kimberly-Clark de México S. A. B. de C. V's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Kimberly-Clark de México S. A. B. de C. V.

What Can We Tell From Kimberly-Clark de México S. A. B. de C. V's ROCE Trend?

Kimberly-Clark de México S. A. B. de C. V's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 31% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

On a side note, Kimberly-Clark de México S. A. B. de C. V's current liabilities are still rather high at 43% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line

In summary, we're delighted to see that Kimberly-Clark de México S. A. B. de C. V has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And with a respectable 41% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know about the risks facing Kimberly-Clark de México S. A. B. de C. V, we've discovered 2 warning signs that you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.