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

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. 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. To calculate this metric for Megacable Holdings S. A. B. de C. V, this is the formula:

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

0.15 = Mex$6.8b ÷ (Mex$54b - Mex$10b) (Based on the trailing twelve months to March 2022).

Thus, Megacable Holdings S. A. B. de C. V has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 12% generated by the Media industry.

Check out 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 Can We Tell From Megacable Holdings S. A. B. de C. V's ROCE Trend?

While the current returns on capital are decent, they haven't changed much. The company has employed 51% more capital in the last five years, and the returns on that capital have remained stable at 15%. 15% 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.

What We Can Learn From Megacable Holdings S. A. B. de C. V's ROCE

In the end, Megacable Holdings S. A. B. de C. V has proven its ability to adequately reinvest capital at good rates of return. Yet over the last five years the stock has declined 18%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

If you'd like to know about the risks facing Megacable Holdings S. A. B. de C. V, we've discovered 1 warning sign that you should be aware of.

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.

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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.