Grupo Traxión. de's (BMV:TRAXIONA) Returns On Capital Are Heading Higher

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 Grupo Traxión. de's (BMV:TRAXIONA) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Grupo Traxión. de:

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

0.095 = Mex$1.8b ÷ (Mex$24b - Mex$4.9b) (Based on the trailing twelve months to June 2022).

Therefore, Grupo Traxión. de has an ROCE of 9.5%. In absolute terms, that's a low return but it's around the Transportation industry average of 10.0%.

View our latest analysis for Grupo Traxión. de

In the above chart we have measured Grupo Traxión. 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 Grupo Traxión. de.

What Can We Tell From Grupo Traxión. de's ROCE Trend?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 9.5%. 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 100%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On Grupo Traxión. de's ROCE

To sum it up, Grupo Traxión. de has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 73% awarded to those who held the stock over the last three years, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to know some of the risks facing Grupo Traxión. de we've found 2 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

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. 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.