Mills Estruturas e Serviços de Engenharia's (BVMF:MILS3) Returns On Capital Are Heading Higher

By
Simply Wall St
Published
November 11, 2021
BOVESPA:MILS3
Source: Shutterstock

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. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Mills Estruturas e Serviços de Engenharia (BVMF:MILS3) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Mills Estruturas e Serviços de Engenharia, this is the formula:

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

0.075 = R$99m ÷ (R$1.5b - R$173m) (Based on the trailing twelve months to June 2021).

So, Mills Estruturas e Serviços de Engenharia has an ROCE of 7.5%. In absolute terms, that's a low return and it also under-performs the Trade Distributors industry average of 13%.

Check out our latest analysis for Mills Estruturas e Serviços de Engenharia

roce
BOVESPA:MILS3 Return on Capital Employed November 12th 2021

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Mills Estruturas e Serviços de Engenharia's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Mills Estruturas e Serviços de Engenharia's ROCE Trending?

We're delighted to see that Mills Estruturas e Serviços de Engenharia is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 7.5%, which is always encouraging. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.

What We Can Learn From Mills Estruturas e Serviços de Engenharia's ROCE

To sum it up, Mills Estruturas e Serviços de Engenharia is collecting higher returns from the same amount of capital, and that's impressive. And with a respectable 64% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 3 warning signs facing Mills Estruturas e Serviços de Engenharia that you might find interesting.

While Mills Estruturas e Serviços de Engenharia 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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