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

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. 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.

Understanding 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. 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)

0.28 = Mex$9.4b ÷ (Mex$50b - Mex$17b) (Based on the trailing twelve months to September 2021).

So, Kimberly-Clark de México S. A. B. de C. V has an ROCE of 28%. In absolute terms that's a great return and it's even better than the Household Products industry average of 14%.

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 The Trend Of ROCE Can Tell Us

We'd be pretty happy with returns on capital like Kimberly-Clark de México S. A. B. de C. V. Over the past five years, ROCE has remained relatively flat at around 28% and the business has deployed 21% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. You'll see this when looking at well operated businesses or favorable business models.

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

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. Despite the good fundamentals, total returns from the stock have been virtually flat over the last five years. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

One more thing to note, we've identified 2 warning signs with Kimberly-Clark de México S. A. B. de C. V and understanding these should be part of your investment process.

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.

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.

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