Cyrela Brazil Realty Empreendimentos e Participações' (BVMF:CYRE3) Returns On Capital Are Heading Higher

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Cyrela Brazil Realty Empreendimentos e Participações' (BVMF:CYRE3) returns on capital, so let's have a look.

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. Analysts use this formula to calculate it for Cyrela Brazil Realty Empreendimentos e Participações:

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

0.069 = R$781m ÷ (R$14b - R$2.6b) (Based on the trailing twelve months to December 2021).

Therefore, Cyrela Brazil Realty Empreendimentos e Participações has an ROCE of 6.9%. In absolute terms, that's a low return but it's around the Consumer Durables industry average of 7.5%.

See 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 to see what analysts are forecasting going forward, you should check out our free report for Cyrela Brazil Realty Empreendimentos e Participações.

The Trend Of ROCE

Cyrela Brazil Realty Empreendimentos e Participações 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 272% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Key Takeaway

In summary, we're delighted to see that Cyrela Brazil Realty Empreendimentos e Participações has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And with a respectable 50% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing, we've spotted 2 warning signs facing Cyrela Brazil Realty Empreendimentos e Participações that you might find interesting.

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.