Returns On Capital At Megacable Holdings S. A. B. de C. V (BMV:MEGACPO) Have Hit The Brakes

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over Megacable Holdings S. A. B. de C. V's (BMV:MEGACPO) trend of ROCE, we liked what we saw.

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. The formula for this calculation on Megacable Holdings S. A. B. de C. V is:

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

0.16 = Mex$6.7b ÷ (Mex$51b - Mex$9.5b) (Based on the trailing twelve months to September 2021).

Thus, 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%.

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

In the above chart we have measured Megacable Holdings S. A. B. de C. V's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Megacable Holdings S. A. B. de C. V.

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

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 16% and the business has deployed 55% more capital into its operations. Since 16% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Key Takeaway

In the end, Megacable Holdings S. A. B. de C. V has proven its ability to adequately reinvest capital at good rates of return. And given the stock has only risen 4.9% over the last five years, we'd suspect the market is beginning to recognize these trends. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.

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

While Megacable Holdings 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.

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.

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