Boa Vista Serviços (BVMF:BOAS3) Is Doing The Right Things To Multiply Its Share Price

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Boa Vista Serviços' (BVMF:BOAS3) returns on capital, so let's have a look.

Understanding 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. Analysts use this formula to calculate it for Boa Vista Serviços:

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

0.089 = R$208m ÷ (R$2.6b - R$218m) (Based on the trailing twelve months to March 2022).

So, Boa Vista Serviços has an ROCE of 8.9%. In absolute terms, that's a low return and it also under-performs the Professional Services industry average of 13%.

See our latest analysis for Boa Vista Serviços

In the above chart we have measured Boa Vista 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.

What Can We Tell From Boa Vista Serviços' ROCE Trend?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 8.9%. Basically the business is earning more per dollar of capital invested and in addition to that, 392% more capital is being employed now too. So we're very much inspired by what we're seeing at Boa Vista Serviços thanks to its ability to profitably reinvest capital.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 8.5%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Boa Vista Serviços has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Key Takeaway

To sum it up, Boa Vista Serviços has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Given the stock has declined 34% in the last year, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you want to continue researching Boa Vista Serviços, you might be interested to know about the 1 warning sign that our analysis has discovered.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.