Profitability on the Mexican Stock Exchange (BMV): ROIC and ROE of issuers in the Mexican market in the first quarter

With the conclusion of the first quarter of 2025 quarterly reporting season for issuers in the Mexican market, and as we await the next quarter's reports, it is valuable to know which issuers presented the most notable profitability metrics.

Generally, attention is focused on margins on revenue: gross margin, operating margin, net margin, as well as widely used but not officially recognized margins, such as EBITDA margin.

These data indicate the extent to which companies generate revenue above their various cost and expense categories, which is vitally important. However, these metrics are insufficient to capture the extent to which the resources invested in a company generate returns for its owners. Therefore, it is necessary to look at other profitability indicators that establish a link between these margins and the capital invested in the company.

Among the main measures available to carry out this are Return on Equity (ROE) and Return on Invested Capital (ROIC).

ROE is the ratio of trailing net income for the past 12 months (4 quarters) divided by shareholders' equity (average of the last 12 months).

Breaking down ROE into net income, asset turnover, and, specifically, the asset-to-equity ratio shows that a company's capital structure and its operating and financial performance determine profitability, as measured by ROE: the higher the net income, the higher the ROE; likewise, the greater the amount of resources invested in the company from shareholders (equity), the lower the ROE.

During Q1 2025, BMV issuers as a whole had an ROE of 11.5%, which represented a decrease of 18 bp year-on-year.

The issuers included in the S&P/BMV IPC index as a whole had an ROE of 12.1%, which represented a decline of 31 bp year-on-year. A look at the different industries shows that telecommunications services posted the largest declines (-751 bp year-on-year), which is explained by the decline in América Móvil's (AMX) accumulated net income.

ROIC is the ratio of trailing 12-month operating income less adjusted taxes (NOPLAT) divided by trailing 12-month average invested capital (the cumulative amount a company has invested in its operations regardless of the source of funding).

In our analysis, we opted for a modification of the traditional methodology for calculating ROIC: we excluded the effects of different corporate tax burdens, and we also chose to take into account items that do not represent actual cash outflows.

That is, instead of NOPLAT, we use operating earnings before interest, taxes, depreciation, and amortization (EBITDA). This approach to analysis allows for a certain degree of comparability between companies, although caution is required when comparing each issuer's ROIC with its respective Weighted Average Cost of Capital (WACC).

During the first quarter of 2025, BMV issuers as a whole had a ROIC of 21.2%, an increase of 54 bp year-on-year. Issuers belonging to the S&P/BMV IPC index as a whole had a ROIC of 24.7%, an increase of 100 bp year-on-year.

Looking at the performance of different industries, materials companies posted the most notable gains (+480 bps y/y), while the most pronounced declines were seen in healthcare companies (-410 bps y/y).

Both EBITDA margins (21.4% for BMV issuers; and 21.5% for those belonging to the index) and invested capital rotations (0.99x for BMV issuers; and 1.15x for those belonging to the index) showed progress, which allowed increases in aggregate ROIC.

Finally, it should be remembered that, although margins and profitability metrics (such as ROE and ROIC) are relevant to assessing a company's efficiency, its ability to create value in the future should not be overlooked when seeking to determine whether or not it may constitute a good investment opportunity.