Construtora Adolpho Lindenberg (BVMF:CALI3) Is Looking To Continue Growing Its Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Construtora Adolpho Lindenberg (BVMF:CALI3) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Construtora Adolpho Lindenberg is:

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

0.075 = R$13m ÷ (R$202m - R$33m) (Based on the trailing twelve months to September 2023).

So, Construtora Adolpho Lindenberg has an ROCE of 7.5%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 10.0%.

View our latest analysis for Construtora Adolpho Lindenberg

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

How Are Returns Trending?

Construtora Adolpho Lindenberg has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 7.5% which is a sight for sore eyes. In addition to that, Construtora Adolpho Lindenberg is employing 357% 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, Construtora Adolpho Lindenberg gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Since the stock has only returned 9.8% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Construtora Adolpho Lindenberg does come with some risks though, we found 5 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

While Construtora Adolpho Lindenberg isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.