What Do The Returns On Capital At Megacable Holdings S. A. B. de C. V (BMV:MEGACPO) Tell Us?

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. 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.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from 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$6.3b ÷ (Mex$47b - Mex$3.9b) (Based on the trailing twelve months to September 2020).

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 10% generated by the Media industry.

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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can 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 15% and the business has deployed 84% more capital into its operations. 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. 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.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 8.4% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Bottom Line 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. In light of this, the stock has only gained 30% over the last five years for shareholders who have owned the stock in this period. 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.

Like most companies, Megacable Holdings S. A. B. de C. V does come with some risks, and we've found 1 warning sign that you should be aware of.

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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