The Returns At El Puerto de Liverpool. de (BMV:LIVEPOLC-1) Provide Us With Signs Of What's To Come

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. Having said that, from a first glance at El Puerto de Liverpool. de (BMV:LIVEPOLC-1) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What is 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. The formula for this calculation on El Puerto de Liverpool. de is:

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

0.051 = Mex$8.3b ÷ (Mex$201b - Mex$37b) (Based on the trailing twelve months to September 2020).

Thus, El Puerto de Liverpool. de has an ROCE of 5.1%. In absolute terms, that's a low return and it also under-performs the Multiline Retail industry average of 6.4%.

See our latest analysis for El Puerto de Liverpool. de

In the above chart we have measured El Puerto de Liverpool. de'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 El Puerto de Liverpool. de.

How Are Returns Trending?

In terms of El Puerto de Liverpool. de's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 5.1% from 14% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

In Conclusion...

In summary, we're somewhat concerned by El Puerto de Liverpool. de's diminishing returns on increasing amounts of capital. Long term shareholders who've owned the stock over the last five years have experienced a 66% depreciation in their investment, so it appears the market might not like these trends either. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

If you'd like to know more about El Puerto de Liverpool. de, we've spotted 2 warning signs, and 1 of them is a bit concerning.

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. 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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