We view these underlying capital return trends favorably for Quiñenco (SNSE:QUINENCO)

If you want to identify stocks that will double in value over the long term, what trends should you look at? Usually, you look at growth trends. return Return on Invested Capital (ROCE) and associated expansion base 20% of invested capital. This indicates a company that is reinvesting its profits while increasing its rate of return. With this in mind, we’ve noticed some encouraging trends. Kinyenko (SNSE:QUINENCO) Let’s take a closer look.

What is Return on Invested Capital (ROCE)?

For those unsure of what ROCE is, it measures the amount of pre-tax profit a company is able to generate from the capital employed in its business. Analysts would calculate ROCE for Quiñenco using the following formula:

Return on Invested Capital = Earnings Before Interest and Taxes (EBIT) ÷ (Total Assets – Current Liabilities)

0.058 = 1.8t CL$ ÷ (72t CL$ – 41t CL$) (Based on the trailing 12 months ending March 2024).

therefore, Quiñenco has an ROCE of 5.8%. That’s a low return on capital in itself, but it’s on par with the industry average return of 5.8%.

Check out our latest analysis for Kinyenko

Historical performance is always a great starting point when researching a stock. Above you can see a graph comparing Kinenko’s ROCE with its past earnings, and if you want to examine the past earnings more closely you can see below. free A detailed chart showing Quiñenco’s earnings and cash flow performance.

What does Quiñenco’s ROCE trend indicate?

While the ROCE is still low in absolute terms, we’re pleased to see that it’s heading in the right direction. Over the past five years, the return on invested capital has increased significantly to 5.8%. Essentially, earnings per dollar of invested capital are increasing, and on top of that, there’s also an 85% increase in currently deployed capital. So we’re very excited about Quiñenco’s ability to profitably reinvest capital.

Another thing to note is that Kinyenko has a high current liabilities to total assets ratio of 57%. This ratio may pose some risk as the company is fundamentally quite dependent on suppliers and other short-term creditors to run its business. Ideally, we would like to see this ratio decrease as this would mean less debt at risk.

Conclusion

Overall, it’s great to see Kinyenko growing its capital base by capitalizing on past investments, and investors are taking this pattern into consideration given the strong share price performance over the past five years. Therefore, as the stock is proving to be on a promising trend, it’s worth investigating the company further to see if this trend will continue.

We noticed that there are some risks with Kinyenko. Four Warning Signs (and two that are a bit worrying) that I think you need to know about.

If you want to find solid companies with profitable returns, check these out free A list of companies with strong balance sheets and good return on equity.

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This article by Simply Wall St is general in nature. We use only unbiased methodologies to provide commentary based on historical data and analyst forecasts, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks, and does not take into account your objectives, or your financial situation. We seek to provide long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.

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