Investors Met With Slowing Returns on Capital At Megacable Holdings S. A. B. de C. V (BMV:MEGACPO)

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of Megacable Holdings S. A. B. de C. V (BMV:MEGACPO) looks decent, right now, so lets see what the trend of returns can tell us.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Megacable Holdings S. A. B. de C. V:

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

0.16 = Mex$6.8b ÷ (Mex$54b - Mex$12b) (Based on the trailing twelve months to December 2021).

Therefore, Megacable Holdings S. A. B. de C. V has an ROCE of 16%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Media industry average of 15%.

See our latest analysis for Megacable Holdings S. A. B. de C. V

Above you can see how the current ROCE for Megacable Holdings 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, you can check out the forecasts from the analysts covering Megacable Holdings S. A. B. de C. V here for free.

The Trend Of ROCE

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 54% more capital in the last five years, and the returns on that capital have remained stable at 16%. 16% is a pretty standard return, and it provides some comfort knowing that Megacable Holdings S. A. B. de C. V has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

Our Take On Megacable Holdings S. A. B. de C. V's ROCE

The main thing to remember is that Megacable Holdings S. A. B. de C. V has proven its ability to continually reinvest at respectable rates of return. Yet over the last five years the stock has declined 10%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

Megacable Holdings S. A. B. de C. V does have some risks though, and we've spotted 1 warning sign for Megacable Holdings S. A. B. de C. V that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.