Grupo México. de (BMV:GMEXICOB) Shareholders Will Want The ROCE Trajectory To Continue

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Grupo México. de's (BMV:GMEXICOB) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Grupo México. de, this is the formula:

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

0.19 = US$6.0b ÷ (US$34b - US$1.8b) (Based on the trailing twelve months to June 2023).

Thus, Grupo México. de has an ROCE of 19%. That's a relatively normal return on capital, and it's around the 16% generated by the Metals and Mining industry.

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'd like, you can check out the forecasts from the analysts covering Grupo México. de here for free.

What Can We Tell From Grupo México. de's ROCE Trend?

Investors would be pleased with what's happening at Grupo México. de. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 19%. The amount of capital employed has increased too, by 29%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

In summary, it's great to see that Grupo México. de can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 103% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

Grupo México. de does have some risks though, and we've spotted 1 warning sign for Grupo México. de that you might be interested in.

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.

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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.