Controladora Vuela Compañía de Aviación. de's (BMV:VOLARA) Returns On Capital Are Heading Higher

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 on that note, Controladora Vuela Compañía de Aviación. de (BMV:VOLARA) looks quite promising in regards to its trends of return on capital.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its 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)

0.09 = US$265m ÷ (US$4.4b - US$1.5b) (Based on the trailing twelve months to June 2022).

Thus, Controladora Vuela Compañía de Aviación. de has an ROCE of 9.0%. On its own that's a low return, but compared to the average of 5.0% generated by the Airlines industry, 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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 9.0%. Basically the business is earning more per dollar of capital invested and in addition to that, 392% more capital is being employed now too. 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.

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.

Our Take On Controladora Vuela Compañía de Aviación. 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 Controladora Vuela Compañía de Aviación. de has. Given the stock has declined 15% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

Controladora Vuela Compañía de Aviación. de does have some risks though, and we've spotted 1 warning sign for Controladora Vuela Compañía de Aviación. de that you might be interested in.

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.