GMéxico Transportes. de (BMV:GMXT) Is Experiencing Growth In Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in GMéxico Transportes. de's (BMV:GMXT) returns on capital, so let's have a look.

Understanding 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 GMéxico Transportes. de is:

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

0.15 = Mex$18b ÷ (Mex$126b - Mex$12b) (Based on the trailing twelve months to December 2022).

Thus, GMéxico Transportes. de has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Transportation industry average of 11% it's much better.

See our latest analysis for GMéxico Transportes. de

In the above chart we have measured GMéxico Transportes. 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 GMéxico Transportes. de.

How Are Returns Trending?

GMéxico Transportes. de is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 15%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 28%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On GMéxico Transportes. de's ROCE

All in all, it's terrific to see that GMéxico Transportes. de is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 60% return over the last five years. In light of that, we think it's worth looking further into this stock because if GMéxico Transportes. de can keep these trends up, it could have a bright future ahead.

Like most companies, GMéxico Transportes. de does come with some risks, and we've found 2 warning signs 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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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.