Mills Locação Serviços e Logística (BVMF:MILS3) Is Experiencing Growth In Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. 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 Locação Serviços e Logística (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 Locação Serviços e Logística, this is the formula:

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

0.18 = R$418m ÷ (R$2.7b - R$334m) (Based on the trailing twelve months to June 2023).

So, Mills Locação Serviços e Logística has an ROCE of 18%. That's a relatively normal return on capital, and it's around the 19% generated by the Trade Distributors industry.

Check out our latest analysis for Mills Locação Serviços e Logística

In the above chart we have measured Mills Locação Serviços e Logística's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Mills Locação Serviços e Logística here for free.

What Does the ROCE Trend For Mills Locação Serviços e Logística Tell Us?

We're delighted to see that Mills Locação Serviços e Logística is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 18% which is a sight for sore eyes. Not only that, but the company is utilizing 157% more capital than before, but that's to be expected from a company trying to break into profitability. 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.

The Bottom Line

Long story short, we're delighted to see that Mills Locação Serviços e Logística's reinvestment activities have paid off and the company is now profitable. And a remarkable 620% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 1 warning sign with Mills Locação Serviços e Logística and understanding it should be part of your investment process.

While Mills Locação Serviços e Logística 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.