Compañía Minera Autlán. de (BMV:AUTLANB) Is Reinvesting At Lower Rates Of Return

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Compañía Minera Autlán. de (BMV:AUTLANB), it didn't seem to tick all of these boxes.

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 Compañía Minera Autlán. de, this is the formula:

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

0.021 = US$12m ÷ (US$832m - US$244m) (Based on the trailing twelve months to December 2020).

So, Compañía Minera Autlán. de has an ROCE of 2.1%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 12%.

View our latest analysis for Compañía Minera Autlán. de

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Compañía Minera Autlán. de, check out these free graphs here.

How Are Returns Trending?

When we looked at the ROCE trend at Compañía Minera Autlán. de, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 2.1% from 3.0% five years ago. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

On a side note, Compañía Minera Autlán. de's current liabilities have increased over the last five years to 29% of total assets, effectively distorting the ROCE to some degree. Without this increase, it's likely that ROCE would be even lower than 2.1%. Keep an eye on this ratio, because the business could encounter some new risks if this metric gets too high.

Our Take On Compañía Minera Autlán. de's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Compañía Minera Autlán. de have fallen, meanwhile the business is employing more capital than it was five years ago. The market must be rosy on the stock's future because even though the underlying trends aren't too encouraging, the stock has soared 112%. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

On a final note, we found 3 warning signs for Compañía Minera Autlán. de (2 make us uncomfortable) you should be aware of.

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.

When trading Compañía Minera Autlán. de or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide 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.