Yahoo Finance Tortilla Mexican Grill (LON:MEX) Shareholders Will Want The ROCE Trajectory To Continue
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Tortilla Mexican Grill (LON:MEX) and its trend of ROCE, we really liked what we saw.
Understanding Return On Capital Employed (ROCE)
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Tortilla Mexican Grill, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.011 = UK£398k ÷ (UK£52m - UK£15m) (Based on the trailing twelve months to July 2023).
Thus, Tortilla Mexican Grill has an ROCE of 1.1%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 7.0%.
Check out our latest analysis for Tortilla Mexican Grill
Above you can see how the current ROCE for Tortilla Mexican Grill 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 analyst report for Tortilla Mexican Grill .
The Trend Of ROCE
Tortilla Mexican Grill has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 1.1% on its capital. In addition to that, Tortilla Mexican Grill is employing 84% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
In Conclusion...
Overall, Tortilla Mexican Grill gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Astute investors may have an opportunity here because the stock has declined 69% in the last year. With that in mind, we believe the promising trends warrant this stock for further investigation.
Like most companies, Tortilla Mexican Grill does come with some risks, and we've found 2 warning signs that you should be aware of.
While Tortilla Mexican Grill isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
