Returns Are Gaining Momentum At Allpark Empreendimentos Participações e Serviços (BVMF:ALPK3)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Allpark Empreendimentos Participações e Serviços (BVMF:ALPK3) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

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 Allpark Empreendimentos Participações e Serviços, this is the formula:

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

0.13 = R$254m ÷ (R$2.7b - R$718m) (Based on the trailing twelve months to June 2024).

Therefore, Allpark Empreendimentos Participações e Serviços has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Commercial Services industry average of 11%.

See 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'd like, you can check out the forecasts from the analysts covering Allpark Empreendimentos Participações e Serviços for free.

How Are Returns Trending?

Allpark Empreendimentos Participações e Serviços is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 41% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line

In summary, we're delighted to see that Allpark Empreendimentos Participações e Serviços has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Given the stock has declined 45% in the last three years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

If you'd like to know about the risks facing Allpark Empreendimentos Participações e Serviços, we've discovered 1 warning sign 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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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.