The Trend Of High Returns At TV Azteca. de (BMV:AZTECACPO) Has Us Very Interested

By
Simply Wall St
Published
January 15, 2022
BMV:AZTECA CPO
Source: Shutterstock

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at the ROCE trend of TV Azteca. de (BMV:AZTECACPO) we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on TV Azteca. de is:

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

0.25 = Mex$3.3b ÷ (Mex$27b - Mex$14b) (Based on the trailing twelve months to September 2021).

Therefore, TV Azteca. de has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Media industry average of 15%.

View our latest analysis for TV Azteca. de

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BMV:AZTECA CPO Return on Capital Employed January 15th 2022

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're interested in investigating TV Azteca. de's past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We're pretty happy with how the ROCE has been trending at TV Azteca. de. The figures show that over the last five years, returns on capital have grown by 171%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, TV Azteca. de appears to been achieving more with less, since the business is using 48% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 51% of the business, which is more than it was five years ago. And with current liabilities at those levels, that's pretty high.

In Conclusion...

In a nutshell, we're pleased to see that TV Azteca. de has been able to generate higher returns from less capital. Given the stock has declined 57% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a separate note, we've found 4 warning signs for TV Azteca. de you'll probably want to know about.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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