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We like these fundamental return on capital trends at Quiñenco (SNSE:QUINENCO)

What trends should we look for when we want to identify stocks that can multiply in value over the long term? Usually, we want to identify a trend of growth. to return on the capital employed (ROCE) and in parallel a growing base of the capital employed. Ultimately, this shows that this is a company that reinvests profits with increasing returns. With this in mind, we have identified some promising trends in Quinenco (SNSE:QUINENCO), so let's take a closer look.

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

For those who don't know what ROCE is, it measures the amount of pre-tax profit a company can generate with the capital employed in its business. Analysts use this formula to calculate it for Quiñenco:

Return on capital = earnings before interest and taxes (EBIT) ÷ (total assets – current liabilities)

0.058 = 1.8 t CL$ ÷ (72 t CL$ – 41 t CL$) (Based on the last twelve months to March 2024).

Therefore, Quiñenco has a ROCE of 5.8%. This is a low return on capital in itself, but it is within the industry average return of 5.8%.

Check out our latest analysis for Quiñenco

SNSE:QUINENCO Return on Capital July 5, 2024

Historical performance is a good place to start when analyzing a stock. Above you can see Quiñenco's ROCE compared to past returns. If you want to delve into historical returns, check out these free Charts with detailed information on Quiñenco's sales and cash flow development.

What does the ROCE trend tell us for Quiñenco?

While ROCE is still low in absolute terms, it's good to see that it's heading in the right direction. Over the last five years, return on capital has increased significantly to 5.8%. Essentially, the company is earning more per dollar of capital invested, and on top of that, it's now employing 85% more capital. So we're very encouraged by what we're seeing at Quiñenco, thanks to its ability to profitably reinvest capital.

It is also important to note that Quiñenco has a high ratio of short-term liabilities to total assets of 57%. This may pose some risks as the company is fundamentally highly dependent on its suppliers or other types of short-term creditors. Ideally, we would like to see this ratio reduced as it would mean fewer risky obligations.

The conclusion

All in all, it's great to see Quiñenco reaping the rewards of past investments and growing its capital base. And since the stock has performed exceptionally well over the past five years, these patterns are being taken into account by investors. So, since the stock has proven to have promising trends, it's worth taking a closer look at the company to see if these trends are likely to continue.

Quiñenco poses some risks, as we have found 4 warning signs (and 2 that are a little worrying) that we think you should know about.

If you want to look for solid companies with high returns, check out this free List of companies with good balance sheets and impressive return on equity.

Valuation is complex, but we help simplify it.

Find out if Quinenco may be over- or undervalued by checking our comprehensive analysis which includes Fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View free analysis

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This Simply Wall St article is of a general nature. We comment solely on historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.

Valuation is complex, but we help simplify it.

Find out if Quinenco may be over- or undervalued by checking our comprehensive analysis which includes Fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View free analysis

Do you have feedback on this article? Are you interested in the content? Contact us directly. Alternatively, send an email to [email protected]