Industrias Peñoles. de's (BMV:PE&OLES) Returns On Capital Are Heading Higher

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. With that in mind, we've noticed some promising trends at Industrias Peñoles. de (BMV:PE&OLES) so let's look a bit deeper.

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 Industrias Peñoles. de, this is the formula:

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

0.097 = US$823m ÷ (US$9.3b - US$789m) (Based on the trailing twelve months to March 2021).

Thus, Industrias Peñoles. de has an ROCE of 9.7%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 16%.

See our latest analysis for Industrias Peñoles. de

Above you can see how the current ROCE for Industrias Peñoles. 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 Industrias Peñoles. de here for free.

How Are Returns Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 9.7%. The amount of capital employed has increased too, by 38%. So we're very much inspired by what we're seeing at Industrias Peñoles. de thanks to its ability to profitably reinvest capital.

The Bottom Line On Industrias Peñoles. de's ROCE

To sum it up, Industrias Peñoles. de has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Astute investors may have an opportunity here because the stock has declined 35% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you'd like to know about the risks facing Industrias Peñoles. de, we've discovered 2 warning signs that you should be aware of.

While Industrias Peñoles. de may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. 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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