Investors Will Want Cyrela Brazil Realty Empreendimentos e Participações' (BVMF:CYRE3) Growth In ROCE To Persist

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Cyrela Brazil Realty Empreendimentos e Participações (BVMF:CYRE3) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Cyrela Brazil Realty Empreendimentos e Participações is:

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

0.05 = R$678m ÷ (R$17b - R$3.3b) (Based on the trailing twelve months to June 2023).

So, Cyrela Brazil Realty Empreendimentos e Participações has an ROCE of 5.0%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 8.6%.

See our latest analysis for Cyrela Brazil Realty Empreendimentos e Participações

Above you can see how the current ROCE for Cyrela Brazil Realty Empreendimentos e Participações compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

Cyrela Brazil Realty Empreendimentos e Participações has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 5.0% on its capital. In addition to that, Cyrela Brazil Realty Empreendimentos e Participações is employing 77% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

Our Take On Cyrela Brazil Realty Empreendimentos e Participações' ROCE

In summary, it's great to see that Cyrela Brazil Realty Empreendimentos e Participações has managed to break into profitability and is continuing to reinvest in its business. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a separate note, we've found 1 warning sign for Cyrela Brazil Realty Empreendimentos e Participações you'll probably want to know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.