Returns On Capital At CEMEX. de (BMV:CEMEXCPO) Have Hit The Brakes

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at CEMEX. de (BMV:CEMEXCPO) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for CEMEX. de, this is the formula:

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

0.08 = US$1.8b ÷ (US$28b - US$5.9b) (Based on the trailing twelve months to June 2023).

Thus, CEMEX. de has an ROCE of 8.0%. On its own, that's a low figure but it's around the 9.3% average generated by the Basic Materials industry.

Check out our latest analysis for CEMEX. de

Above you can see how the current ROCE for CEMEX. de compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering CEMEX. de here for free.

What The Trend Of ROCE Can Tell Us

Things have been pretty stable at CEMEX. de, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if CEMEX. de doesn't end up being a multi-bagger in a few years time.

The Bottom Line

In a nutshell, CEMEX. de has been trudging along with the same returns from the same amount of capital over the last five years. Unsurprisingly then, the total return to shareholders over the last five years has been flat. Therefore based on the analysis done in this article, we don't think CEMEX. de has the makings of a multi-bagger.

CEMEX. de does have some risks though, and we've spotted 2 warning signs for CEMEX. de that you might be interested in.

While CEMEX. de isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.