We Like These Underlying Return On Capital Trends At Plascar Participações Industriais (BVMF:PLAS3)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. With that in mind, we've noticed some promising trends at Plascar Participações Industriais (BVMF:PLAS3) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Plascar Participações Industriais, this is the formula:

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

0.12 = R$20m ÷ (R$663m - R$496m) (Based on the trailing twelve months to December 2024).

Thus, Plascar Participações Industriais has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 8.5% generated by the Auto Components industry.

See our latest analysis for Plascar Participações Industriais

Historical performance is a great place to start when researching a stock so above you can see the gauge for Plascar Participações Industriais' ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Plascar Participações Industriais.

So How Is Plascar Participações Industriais' ROCE Trending?

Plascar Participações Industriais has not disappointed in regards to ROCE growth. We found that the returns on capital employed over the last five years have risen by 466%. The company is now earning R$0.1 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 46% less capital than it was five years ago. Plascar Participações Industriais may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Essentially the business now has suppliers or short-term creditors funding about 75% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.

The Bottom Line On Plascar Participações Industriais' ROCE

In summary, it's great to see that Plascar Participações Industriais has been able to turn things around and earn higher returns on lower amounts of capital. Since the stock has returned a solid 43% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Plascar Participações Industriais does come with some risks though, we found 4 warning signs in our investment analysis, and 3 of those don't sit too well with us...

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.