Grupo México. de (BMV:GMEXICOB) Is Achieving High Returns On Its Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Grupo México. de (BMV:GMEXICOB) looks great, so lets see what the trend can tell us.

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. Analysts use this formula to calculate it for Grupo México. de:

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

0.25 = US$7.2b ÷ (US$32b - US$2.7b) (Based on the trailing twelve months to September 2021).

So, Grupo México. de has an ROCE of 25%. On its own that's a fantastic return on capital, though it's the same as the Metals and Mining industry average of 25%.

Check out our latest analysis for Grupo México. de

Above you can see how the current ROCE for Grupo México. de compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Grupo México. de's ROCE Trending?

Investors would be pleased with what's happening at Grupo México. de. The data shows that returns on capital have increased substantially over the last five years to 25%. The amount of capital employed has increased too, by 38%. So we're very much inspired by what we're seeing at Grupo México. de thanks to its ability to profitably reinvest capital.

The Bottom Line

All in all, it's terrific to see that Grupo México. de is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 91% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Grupo México. de does have some risks, we noticed 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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