Can BrasilAgro - Companhia Brasileira de Propriedades Agrícolas (BVMF:AGRO3) Continue To Grow Its Returns On Capital?

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at BrasilAgro - Companhia Brasileira de Propriedades Agrícolas (BVMF:AGRO3) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for BrasilAgro - Companhia Brasileira de Propriedades Agrícolas:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.089 = R$146m ÷ (R$1.9b - R$284m) (Based on the trailing twelve months to March 2020).

Therefore, BrasilAgro - Companhia Brasileira de Propriedades Agrícolas has an ROCE of 8.9%. On its own, that's a low figure but it's around the 9.9% average generated by the Food industry.

See our latest analysis for BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

In the above chart we have a measured BrasilAgro - Companhia Brasileira de Propriedades Agrícolas' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From BrasilAgro - Companhia Brasileira de Propriedades Agrícolas' ROCE Trend?

The fact that BrasilAgro - Companhia Brasileira de Propriedades Agrícolas is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 8.9% on its capital. And unsurprisingly, like most companies trying to break into the black, BrasilAgro - Companhia Brasileira de Propriedades Agrícolas is utilizing 132% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

What We Can Learn From BrasilAgro - Companhia Brasileira de Propriedades Agrícolas' ROCE

Overall, BrasilAgro - Companhia Brasileira de Propriedades Agrícolas gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And with the stock having performed exceptionally well over the last five years, these trends are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to continue researching BrasilAgro - Companhia Brasileira de Propriedades Agrícolas, you might be interested to know about the 5 warning signs that our analysis has discovered.

While BrasilAgro - Companhia Brasileira de Propriedades Agrícolas may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. 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.
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