CEMEX. de (BMV:CEMEXCPO) Will Be Hoping To Turn Its Returns On Capital Around

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. This indicates the company is producing less profit from its investments and its total assets are decreasing. On that note, looking into CEMEX. de (BMV:CEMEXCPO), we weren't too upbeat about how things were going.

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 CEMEX. de is:

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

0.047 = US$991m ÷ (US$27b - US$5.5b) (Based on the trailing twelve months to September 2022).

So, CEMEX. de has an ROCE of 4.7%. Ultimately, that's a low return and it under-performs the Basic Materials industry average of 11%.

Check out our latest analysis for CEMEX. de

In the above chart we have measured CEMEX. de'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 CEMEX. de here for free.

What Does the ROCE Trend For CEMEX. de Tell Us?

In terms of CEMEX. de's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 7.1%, however they're now substantially lower than that as we saw above. Meanwhile, capital employed in the business has stayed roughly the flat over the period. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect CEMEX. de to turn into a multi-bagger.

What We Can Learn From CEMEX. de's ROCE

In summary, it's unfortunate that CEMEX. de is generating lower returns from the same amount of capital. Long term shareholders who've owned the stock over the last five years have experienced a 44% depreciation in their investment, so it appears the market might not like these trends either. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

On a final note, we found 3 warning signs for CEMEX. de (1 is a bit unpleasant) you should be aware of.

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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.