Slowing Rates Of Return At Megacable Holdings S. A. B. de C. V (BMV:MEGACPO) Leave Little Room For Excitement

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. 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 who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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$6.9b ÷ (Mex$55b - Mex$12b) (Based on the trailing twelve months to June 2022).

Therefore, Megacable Holdings S. A. B. de C. V has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Media industry average of 11% it's much better.

View 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 to see what analysts are forecasting going forward, you should check out our free report for Megacable Holdings S. A. B. de C. V.

How Are Returns Trending?

While the current returns on capital are decent, they haven't changed much. The company has employed 40% 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.

On another note, while the change in ROCE trend might not scream for attention, it's interesting that the current liabilities have actually gone up over the last five years. This is intriguing because if current liabilities hadn't increased to 22% of total assets, this reported ROCE would probably be less than16% because total capital employed would be higher.The 16% ROCE could be even lower if current liabilities weren't 22% of total assets, because the the formula would show a larger base of total capital employed. With that in mind, just be wary if this ratio increases in the future, because if it gets particularly high, this brings with it some new elements of risk.

The Bottom Line On 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 34%, 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.

On a separate note, we've found 1 warning sign for Megacable Holdings S. A. B. de C. V you'll probably want to know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.