Convertidora Industrial. de's (BMV:CONVERA) Returns On Capital Are Heading Higher

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Convertidora Industrial. de (BMV:CONVERA) looks quite promising in regards to its trends of return on capital.

Understanding 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. To calculate this metric for Convertidora Industrial. de, this is the formula:

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

0.14 = Mex$161m ÷ (Mex$2.0b - Mex$860m) (Based on the trailing twelve months to September 2023).

Thus, Convertidora Industrial. de has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Packaging industry average of 8.1% it's much better.

Check out our latest analysis for Convertidora Industrial. de

Historical performance is a great place to start when researching a stock so above you can see the gauge for Convertidora Industrial. de's ROCE against it's prior returns. If you're interested in investigating Convertidora Industrial. de's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Convertidora Industrial. de's ROCE Trend?

Convertidora Industrial. de has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 35% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

On a separate but related note, it's important to know that Convertidora Industrial. de has a current liabilities to total assets ratio of 43%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On Convertidora Industrial. de's ROCE

To sum it up, Convertidora Industrial. de is collecting higher returns from the same amount of capital, and that's impressive. Astute investors may have an opportunity here because the stock has declined 54% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you want to continue researching Convertidora Industrial. de, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Convertidora Industrial. 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.