Industrias Bachoco. de (NYSE:IBA) Hasn't Managed To Accelerate Its Returns

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. That's why when we briefly looked at Industrias Bachoco. de's (NYSE:IBA) ROCE trend, we were pretty happy with what we saw.

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

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 Industrias Bachoco. de is:

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

0.14 = Mex$7.5b ÷ (Mex$63b - Mex$10b) (Based on the trailing twelve months to September 2021).

Thus, Industrias Bachoco. de has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 9.5% generated by the Food industry.

View our latest analysis for Industrias Bachoco. de

Above you can see how the current ROCE for Industrias Bachoco. 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.

What Can We Tell From Industrias Bachoco. de's ROCE Trend?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 50% more capital in the last five years, and the returns on that capital have remained stable at 14%. 14% is a pretty standard return, and it provides some comfort knowing that Industrias Bachoco. de has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line On Industrias Bachoco. de's ROCE

To sum it up, Industrias Bachoco. de has simply been reinvesting capital steadily, at those decent rates of return. However, over the last five years, the stock hasn't provided much growth to shareholders in the way of total returns. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Industrias Bachoco. de (of which 1 is potentially serious!) that you should know about.

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.