Why You Should Care About Kimberly-Clark de México S. A. B. de C. V's (BMV:KIMBERA) Strong Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Ergo, when we looked at the ROCE trends at Kimberly-Clark de México S. A. B. de C. V (BMV:KIMBERA), we liked what we saw.

What is 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. 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$11b ÷ (Mex$53b - Mex$16b) (Based on the trailing twelve months to December 2020).

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 16% earned by companies in a similar industry.

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, you can check out the forecasts from the analysts covering Kimberly-Clark de México S. A. B. de C. V here for free.

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

We'd be pretty happy with returns on capital like Kimberly-Clark de México S. A. B. de C. V. The company has consistently earned 28% for the last five years, and the capital employed within the business has risen 47% in that time. 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 these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

Our Take On 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. However, over the last five years, the stock has only delivered a 2.3% return to shareholders who held over that period. So to determine if Kimberly-Clark de México S. A. B. de C. V is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

Like most companies, Kimberly-Clark de México S. A. B. de C. V does come with some risks, and we've found 1 warning sign that you should be aware of.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

If you decide to trade Kimberly-Clark de México S. A. B. de C. V, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.