Industrias Bachoco. de's (NYSE:IBA) Returns On Capital Are Heading Higher

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 Industrias Bachoco. de (NYSE:IBA) and its trend of ROCE, we really liked what we saw.

Understanding 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. To calculate this metric for Industrias Bachoco. de, this is the formula:

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

0.15 = Mex$8.1b ÷ (Mex$62b - Mex$8.5b) (Based on the trailing twelve months to June 2021).

Thus, Industrias Bachoco. de has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 10% it's much better.

See our latest analysis for Industrias Bachoco. de

In the above chart we have measured Industrias Bachoco. de's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Industrias Bachoco. de.

What Does the ROCE Trend For Industrias Bachoco. de Tell Us?

Investors would be pleased with what's happening at Industrias Bachoco. de. Over the last five years, returns on capital employed have risen substantially to 15%. Basically the business is earning more per dollar of capital invested and in addition to that, 49% 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.

The Bottom Line

All in all, it's terrific to see that Industrias Bachoco. de is reaping the rewards from prior investments and is growing its capital base. Given the stock has declined 14% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a final note, we found 2 warning signs for Industrias Bachoco. de (1 is significant) you should be aware of.

While Industrias Bachoco. 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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