Returns On Capital Are Showing Encouraging Signs At Grupo Traxión. de (BMV:TRAXIONA)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Grupo Traxión. de (BMV:TRAXIONA) and its trend of ROCE, we really liked what we saw.

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. 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)

0.084 = Mex$2.1b ÷ (Mex$31b - Mex$6.5b) (Based on the trailing twelve months to September 2023).

Therefore, Grupo Traxión. de has an ROCE of 8.4%. In absolute terms, that's a low return and it also under-performs the Transportation industry average of 11%.

Check out 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, you can check out the forecasts from the analysts covering Grupo Traxión. de here for free.

So How Is Grupo Traxión. de's ROCE Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 8.4%. 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 95%. So we're very much inspired by what we're seeing at Grupo Traxión. de thanks to its ability to profitably reinvest capital.

The Bottom Line On Grupo Traxión. de's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Grupo Traxión. de has. Since the stock has returned a staggering 151% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we found 3 warning signs for Grupo Traxión. de (1 shouldn't be ignored) you should be aware of.

While Grupo Traxión. de isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.