Return Trends At Sociedad Química y Minera de Chile (NYSE:SQM) Aren't Appealing

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. With that in mind, the ROCE of Sociedad Química y Minera de Chile (NYSE:SQM) looks decent, right now, so lets see what the trend of returns can tell us.

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. Analysts use this formula to calculate it for Sociedad Química y Minera de Chile:

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

0.13 = US$1.2b ÷ (US$11b - US$1.9b) (Based on the trailing twelve months to September 2024).

So, Sociedad Química y Minera de Chile has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 8.4% generated by the Chemicals industry.

Check out our latest analysis for Sociedad Química y Minera de Chile

In the above chart we have measured Sociedad Química y Minera de Chile'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 analyst report for Sociedad Química y Minera de Chile .

What Can We Tell From Sociedad Química y Minera de Chile's ROCE Trend?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 13% and the business has deployed 153% more capital into its operations. 13% is a pretty standard return, and it provides some comfort knowing that Sociedad Química y Minera de Chile 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.

What We Can Learn From Sociedad Química y Minera de Chile's ROCE

To sum it up, Sociedad Química y Minera de Chile has simply been reinvesting capital steadily, at those decent rates of return. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

One more thing, we've spotted 2 warning signs facing Sociedad Química y Minera de Chile 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.

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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.