Allpark Empreendimentos Participações e Serviços' (BVMF:ALPK3) Returns On Capital Not Reflecting Well On The Business

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Allpark Empreendimentos Participações e Serviços (BVMF:ALPK3), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

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. To calculate this metric for Allpark Empreendimentos Participações e Serviços, this is the formula:

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

0.017 = R$34m ÷ (R$2.7b - R$738m) (Based on the trailing twelve months to March 2021).

Therefore, Allpark Empreendimentos Participações e Serviços has an ROCE of 1.7%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 11%.

View our latest analysis for Allpark Empreendimentos Participações e Serviços

In the above chart we have measured Allpark Empreendimentos Participações e Serviços' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

On the surface, the trend of ROCE at Allpark Empreendimentos Participações e Serviços doesn't inspire confidence. Around five years ago the returns on capital were 3.7%, but since then they've fallen to 1.7%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

The Bottom Line On Allpark Empreendimentos Participações e Serviços' ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Allpark Empreendimentos Participações e Serviços have fallen, meanwhile the business is employing more capital than it was five years ago. Investors haven't taken kindly to these developments, since the stock has declined 16% from where it was year ago. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

Like most companies, Allpark Empreendimentos Participações e Serviços does come with some risks, and we've found 2 warning signs that you should be aware of.

While Allpark Empreendimentos Participações e Serviços 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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