Ambipar Participações e Empreendimentos (BVMF:AMBP3) Might Be Having Difficulty Using Its Capital Effectively

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Ambipar Participações e Empreendimentos (BVMF:AMBP3) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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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 Ambipar Participações e Empreendimentos, this is the formula:

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

0.084 = R$1.2b ÷ (R$17b - R$2.6b) (Based on the trailing twelve months to March 2025).

So, Ambipar Participações e Empreendimentos has an ROCE of 8.4%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 12%.

See our latest analysis for Ambipar Participações e Empreendimentos

In the above chart we have measured Ambipar Participações e Empreendimentos' 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 analyst report for Ambipar Participações e Empreendimentos .

The Trend Of ROCE

When we looked at the ROCE trend at Ambipar Participações e Empreendimentos, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 8.4% from 17% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From Ambipar Participações e Empreendimentos' ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Ambipar Participações e Empreendimentos. And the stock has done incredibly well with a 703% return over the last three years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

One more thing, we've spotted 1 warning sign facing Ambipar Participações e Empreendimentos that you might find interesting.

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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.