There Are Reasons To Feel Uneasy About Megacable Holdings S. A. B. de C. V's (BMV:MEGACPO) Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Although, when we looked at Megacable Holdings S. A. B. de C. V (BMV:MEGACPO), it didn't seem to tick all of these boxes.

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. 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)

0.10 = Mex$6.3b ÷ (Mex$73b - Mex$13b) (Based on the trailing twelve months to June 2024).

So, Megacable Holdings S. A. B. de C. V has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Media industry average of 8.1% it's much better.

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're interested, you can view the analysts predictions in our free analyst report for Megacable Holdings S. A. B. de C. V .

So How Is Megacable Holdings S. A. B. de C. V's ROCE Trending?

In terms of Megacable Holdings S. A. B. de C. V's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 19% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Megacable Holdings S. A. B. de C. V. These growth trends haven't led to growth returns though, since the stock has fallen 31% over the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

One more thing, we've spotted 2 warning signs facing Megacable Holdings S. A. B. de C. V that you might find interesting.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.