There's Been No Shortage Of Growth Recently For Grupo Traxión. de's (BMV:TRAXIONA) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. 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. To calculate this metric for Grupo Traxión. de, this is the formula:

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

0.096 = Mex$2.4b ÷ (Mex$33b - Mex$7.7b) (Based on the trailing twelve months to March 2024).

Therefore, Grupo Traxión. de has an ROCE of 9.6%. In absolute terms, that's a low return but it's around the Transportation industry average of 11%.

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 analyst report for Grupo Traxión. de .

How Are Returns Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 9.6%. Basically the business is earning more per dollar of capital invested and in addition to that, 67% more capital is being employed now too. So we're very much inspired by what we're seeing at Grupo Traxión. de thanks to its ability to profitably reinvest capital.

In Conclusion...

In summary, it's great to see that Grupo Traxión. de can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 108% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know more about Grupo Traxión. de, we've spotted 2 warning signs, and 1 of them makes us a bit uncomfortable.

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.