Kimberly-Clark de México S. A. B. de C. V (BMV:KIMBERA) Might Become A Compounding Machine

What trends should we look for it we want to identify stocks that can 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. That's why when we briefly looked at Kimberly-Clark de México S. A. B. de C. V's (BMV:KIMBERA) ROCE trend, we were very happy with what we saw.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Kimberly-Clark de México S. A. B. de C. V, this is the formula:

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

0.28 = Mex$9.7b ÷ (Mex$55b - Mex$20b) (Based on the trailing twelve months to March 2023).

So, Kimberly-Clark de México S. A. B. de C. V has an ROCE of 28%. That's a fantastic return and not only that, it outpaces the average of 9.6% earned by companies in a similar industry.

View 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.

SWOT Analysis for Kimberly-Clark de México S. A. B. de C. V

What Does the ROCE Trend For Kimberly-Clark de México S. A. B. de C. V Tell Us?

In terms of Kimberly-Clark de México S. A. B. de C. V's history of ROCE, it's quite impressive. The company has employed 44% more capital in the last five years, and the returns on that capital have remained stable at 28%. Now considering ROCE is an attractive 28%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Kimberly-Clark de México S. A. B. de C. V can keep this up, we'd be very optimistic about its future.

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

In short, we'd argue Kimberly-Clark de México S. A. B. de C. V has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

One more thing, we've spotted 2 warning signs facing Kimberly-Clark de México S. A. B. de C. V that you might find interesting.

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.