Industrias CH S. A. B. de C. V (BMV:ICHB) Knows How To Allocate Capital Effectively

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Industrias CH S. A. B. de C. V's (BMV:ICHB) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Industrias CH S. A. B. de C. V:

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

0.25 = Mex$15b ÷ (Mex$76b - Mex$13b) (Based on the trailing twelve months to September 2022).

Therefore, Industrias CH S. A. B. de C. V has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 18%.

Check out our latest analysis for Industrias CH S. A. B. de C. V

Above you can see how the current ROCE for Industrias CH S. A. B. de C. V compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Industrias CH S. A. B. de C. V.

What Can We Tell From Industrias CH S. A. B. de C. V's ROCE Trend?

Industrias CH S. A. B. de C. V is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 25%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 42%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line

All in all, it's terrific to see that Industrias CH S. A. B. de C. V is reaping the rewards from prior investments and is growing its capital base. And a remarkable 175% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Industrias CH S. A. B. de C. V can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Industrias CH S. A. B. de C. V, we've discovered 1 warning sign that you should be aware of.

Industrias CH S. A. B. de C. V is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.