Returns On Capital Are Showing Encouraging Signs At Cyrela Brazil Realty Empreendimentos e Participações (BVMF:CYRE3)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. 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 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)

0.067 = R$741m ÷ (R$13b - R$2.1b) (Based on the trailing twelve months to September 2021).

Therefore, Cyrela Brazil Realty Empreendimentos e Participações has an ROCE of 6.7%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 8.5%.

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'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 not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 144% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

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

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 investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 60% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to continue researching Cyrela Brazil Realty Empreendimentos e Participações, you might be interested to know about the 3 warning signs that our analysis has discovered.

While Cyrela Brazil Realty Empreendimentos e Participações may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.