The Return Trends At Controladora Vuela Compañía de Aviación. de (BMV:VOLARA) Look Promising

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 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. 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)

0.03 = US$95m ÷ (US$4.8b - US$1.6b) (Based on the trailing twelve months to June 2023).

So, Controladora Vuela Compañía de Aviación. de has an ROCE of 3.0%. Ultimately, that's a low return and it under-performs the Airlines industry average of 8.6%.

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.

So How Is Controladora Vuela Compañía de Aviación. de's ROCE Trending?

Controladora Vuela Compañía de Aviación. de has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 3.0% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Controladora Vuela Compañía de Aviación. de is utilizing 433% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 34%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

In Conclusion...

Long story short, we're delighted to see that Controladora Vuela Compañía de Aviación. de's reinvestment activities have paid off and the company is now profitable. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One more thing, we've spotted 1 warning sign facing Controladora Vuela Compañía de Aviación. de that you might find interesting.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.