Returns Are Gaining Momentum At Mills Estruturas e Serviços de Engenharia (BVMF:MILS3)

If you're looking for a multi-bagger, there's a few things to 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. 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 when we looked at Mills Estruturas e Serviços de Engenharia (BVMF:MILS3) and its trend of ROCE, we really liked what we saw.

What is 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 Mills Estruturas e Serviços de Engenharia, this is the formula:

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

0.13 = R$200m ÷ (R$1.8b - R$190m) (Based on the trailing twelve months to March 2022).

Therefore, Mills Estruturas e Serviços de Engenharia has an ROCE of 13%. By itself that's a normal return on capital and it's in line with the industry's average returns of 13%.

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

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'd like to look at how Mills Estruturas e Serviços de Engenharia has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Mills Estruturas e Serviços de Engenharia Tell Us?

Mills Estruturas e Serviços de Engenharia 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 13% which is a sight for sore eyes. Not only that, but the company is utilizing 24% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Key Takeaway

Overall, Mills Estruturas e Serviços de Engenharia 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 a respectable 82% 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.

Mills Estruturas e Serviços de Engenharia does have some risks though, and we've spotted 2 warning signs for Mills Estruturas e Serviços de Engenharia that you might be interested in.

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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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.