Will The ROCE Trend At Grupo Simec. de (NYSEMKT:SIM) Continue?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Grupo Simec. de's (NYSEMKT:SIM) returns on capital, so let's have a look.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Grupo Simec. de:

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

0.089 = Mex$3.4b ÷ (Mex$48b - Mex$9.2b) (Based on the trailing twelve months to September 2020).

So, Grupo Simec. de has an ROCE of 8.9%. In absolute terms, that's a low return but it's around the Metals and Mining industry average of 7.6%.

Check out our latest analysis for Grupo Simec. de

Above you can see how the current ROCE for Grupo Simec. 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 data shows that returns on capital have increased substantially over the last five years to 8.9%. Basically the business is earning more per dollar of capital invested and in addition to that, 22% more capital is being employed now too. So we're very much inspired by what we're seeing at Grupo Simec. de thanks to its ability to profitably reinvest capital.

In Conclusion...

To sum it up, Grupo Simec. de has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 115% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Grupo Simec. de can keep these trends up, it could have a bright future ahead.

On a final note, we've found 2 warning signs for Grupo Simec. de that we think you should be aware of.

While Grupo Simec. de isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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