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If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. So, when we ran our eye over Sociedad Química y Minera de Chile's (NYSE:SQM) trend of ROCE, we 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 Sociedad Química y Minera de Chile, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = US$1.1b ÷ (US$11b - US$2.2b) (Based on the trailing twelve months to December 2024).
Thus, Sociedad Química y Minera de Chile has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 8.7% generated by the Chemicals industry.
See 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 Does the ROCE Trend For Sociedad Química y Minera de Chile Tell Us?
While the current returns on capital are decent, they haven't changed much. The company has employed 137% more capital in the last five years, and the returns on that capital have remained stable at 12%. 12% 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.
The Bottom Line On Sociedad Química y Minera de Chile's ROCE
The main thing to remember is that Sociedad Química y Minera de Chile has proven its ability to continually reinvest at respectable rates of return. And the stock has followed suit returning a meaningful 72% to shareholders over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.