Cyrela Brazil Realty Empreendimentos e Participações (BVMF:CYRE3) Is Experiencing Growth In Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. So when we looked at Cyrela Brazil Realty Empreendimentos e Participações (BVMF:CYRE3) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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 Cyrela Brazil Realty Empreendimentos e Participações, this is the formula:

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

0.045 = R$588m ÷ (R$16b - R$3.3b) (Based on the trailing twelve months to March 2023).

Therefore, Cyrela Brazil Realty Empreendimentos e Participações has an ROCE of 4.5%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 7.4%.

Check out our latest analysis for Cyrela Brazil Realty Empreendimentos e Participações

In the above chart we have measured Cyrela Brazil Realty Empreendimentos e Participações' 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 Cyrela Brazil Realty Empreendimentos e Participações here for free.

What Can We Tell From Cyrela Brazil Realty Empreendimentos e Participações' ROCE Trend?

We're delighted to see that Cyrela Brazil Realty Empreendimentos e Participações is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 4.5% on its capital. And unsurprisingly, like most companies trying to break into the black, Cyrela Brazil Realty Empreendimentos e Participações is utilizing 76% more capital than it was five years ago. 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.

Our Take On Cyrela Brazil Realty Empreendimentos e Participações' ROCE

To the delight of most shareholders, Cyrela Brazil Realty Empreendimentos e Participações has now broken into profitability. Since the stock has returned a staggering 138% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Cyrela Brazil Realty Empreendimentos e Participações can keep these trends up, it could have a bright future ahead.

If you want to continue researching Cyrela Brazil Realty Empreendimentos e Participações, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Cyrela Brazil Realty Empreendimentos e Participações 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.