Returns At Industrias CH S. A. B. de C. V (BMV:ICHB) Are On The Way Up

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. 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.

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. 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)

0.16 = Mex$10b ÷ (Mex$77b - Mex$12b) (Based on the trailing twelve months to September 2023).

So, Industrias CH S. A. B. de C. V has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Metals and Mining industry average of 12% it's much better.

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

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Industrias CH S. A. B. de C. V has performed in the past in other metrics, you can view this free graph of Industrias CH S. A. B. de C. V's past earnings, revenue and cash flow.

What Does the ROCE Trend For Industrias CH S. A. B. de C. V Tell Us?

The trends we've noticed at Industrias CH S. A. B. de C. V are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 16%. Basically the business is earning more per dollar of capital invested and in addition to that, 36% more capital is being employed now too. So we're very much inspired by what we're seeing at Industrias CH S. A. B. de C. V thanks to its ability to profitably reinvest capital.

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

In summary, it's great to see that Industrias CH S. A. B. de C. V 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 141% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing to note, we've identified 1 warning sign with Industrias CH S. A. B. de C. V and understanding it should be part of your investment process.

While Industrias CH S. A. B. de C. V 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.