Controladora Vuela Compañía de Aviación. de (BMV:VOLARA) Is Experiencing Growth In Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. So when we looked at Controladora Vuela Compañía de Aviación. de (BMV:VOLARA) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

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 Controladora Vuela Compañía de Aviación. de, this is the formula:

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

0.15 = US$416m ÷ (US$4.1b - US$1.3b) (Based on the trailing twelve months to March 2022).

Therefore, Controladora Vuela Compañía de Aviación. de has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Airlines industry average of 5.7% it's much better.

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

Above you can see how the current ROCE for Controladora Vuela Compañía de Aviación. de compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Controladora Vuela Compañía de Aviación. de.

The Trend Of ROCE

We like the trends that we're seeing from Controladora Vuela Compañía de Aviación. de. The data shows that returns on capital have increased substantially over the last five years to 15%. Basically the business is earning more per dollar of capital invested and in addition to that, 344% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 33%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

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

All in all, it's terrific to see that Controladora Vuela Compañía de Aviación. de is reaping the rewards from prior investments and is growing its capital base. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 15% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you'd like to know about the risks facing Controladora Vuela Compañía de Aviación. de, we've discovered 1 warning sign that you should be aware of.

While Controladora Vuela Compañía de Aviación. 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. 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.