Investors Could Be Concerned With Grupo Aeroportuario del Centro Norte. de's (BMV:OMAB) Returns On Capital

What financial metrics can indicate to us that a company is maturing or even in decline? A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. And from a first read, things don't look too good at Grupo Aeroportuario del Centro Norte. de (BMV:OMAB), so let's see why.

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. Analysts use this formula to calculate it for Grupo Aeroportuario del Centro Norte. de:

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

0.086 = Mex$1.2b ÷ (Mex$19b - Mex$4.3b) (Based on the trailing twelve months to March 2021).

Thus, Grupo Aeroportuario del Centro Norte. de has an ROCE of 8.6%. On its own that's a low return, but compared to the average of 7.1% generated by the Infrastructure industry, it's much better.

See our latest analysis for Grupo Aeroportuario del Centro Norte. de

In the above chart we have measured Grupo Aeroportuario del Centro Norte. de'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 report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

In terms of Grupo Aeroportuario del Centro Norte. de's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 18%, however they're now substantially lower than that as we saw above. Meanwhile, capital employed in the business has stayed roughly the flat over the period. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect Grupo Aeroportuario del Centro Norte. de to turn into a multi-bagger.

On a side note, Grupo Aeroportuario del Centro Norte. de's current liabilities have increased over the last five years to 23% of total assets, effectively distorting the ROCE to some degree. If current liabilities hadn't increased as much as they did, the ROCE could actually be even lower. While the ratio isn't currently too high, it's worth keeping an eye on this because if it gets particularly high, the business could then face some new elements of risk.

What We Can Learn From Grupo Aeroportuario del Centro Norte. de's ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Investors must expect better things on the horizon though because the stock has risen 33% in the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

One more thing to note, we've identified 2 warning signs with Grupo Aeroportuario del Centro Norte. de and understanding them should be part of your investment process.

While Grupo Aeroportuario del Centro Norte. de may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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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