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

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Cyrela Brazil Realty Empreendimentos e Participações (BVMF:CYRE3) looks quite promising in regards to its trends of return on capital.

What Is 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. 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)

0.049 = R$692m ÷ (R$17b - R$3.0b) (Based on the trailing twelve months to September 2023).

So, Cyrela Brazil Realty Empreendimentos e Participações has an ROCE of 4.9%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 6.3%.

View 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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Cyrela Brazil Realty Empreendimentos e Participações' ROCE Trending?

Cyrela Brazil Realty Empreendimentos e Participações has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 4.9% on its capital. In addition to that, Cyrela Brazil Realty Empreendimentos e Participações is employing 69% more capital than previously which is expected of a company that's trying to break into profitability. 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.

The Bottom Line On Cyrela Brazil Realty Empreendimentos e Participações' ROCE

Overall, Cyrela Brazil Realty Empreendimentos e Participações gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 63% return over the last five years. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.