Be Wary Of Controladora Vuela Compañía de Aviación. de (BMV:VOLARA) And Its Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Having said that, from a first glance at Controladora Vuela Compañía de Aviación. de (BMV:VOLARA) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What is 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 Controladora Vuela Compañía de Aviación. de is:

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

0.13 = Mex$6.4b ÷ (Mex$75b - Mex$25b) (Based on the trailing twelve months to September 2021).

So, Controladora Vuela Compañía de Aviación. de has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Airlines industry average of 2.6% it's much better.

View our latest analysis for Controladora Vuela Compañía de Aviación. de

In the above chart we have measured Controladora Vuela Compañía de Aviación. 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 Controladora Vuela Compañía de Aviación. de here for free.

What The Trend Of ROCE Can Tell Us

In terms of Controladora Vuela Compañía de Aviación. de's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 23% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

What We Can Learn From Controladora Vuela Compañía de Aviación. de's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Controladora Vuela Compañía de Aviación. de is reinvesting for growth and has higher sales as a result. Furthermore the stock has climbed 42% over the last five years, it would appear that investors are upbeat about the future. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

While Controladora Vuela Compañía de Aviación. de doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation on our platform.

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.