Slowing Rates Of Return At Cyrela Brazil Realty Empreendimentos e Participações (BVMF:CYRE3) Leave Little Room For Excitement

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Cyrela Brazil Realty Empreendimentos e Participações (BVMF:CYRE3) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What is Return On Capital Employed (ROCE)?

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)

0.065 = R$614m ÷ (R$12b - R$2.2b) (Based on the trailing twelve months to March 2021).

Therefore, Cyrela Brazil Realty Empreendimentos e Participações has an ROCE of 6.5%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 9.8%.

View 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'd like, you can check out the forecasts from the analysts covering Cyrela Brazil Realty Empreendimentos e Participações here for free.

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for Cyrela Brazil Realty Empreendimentos e Participações' returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Cyrela Brazil Realty Empreendimentos e Participações doesn't end up being a multi-bagger in a few years time. That being the case, it makes sense that Cyrela Brazil Realty Empreendimentos e Participações has been paying out 77% of its earnings to its shareholders. Most shareholders probably know this and own the stock for its dividend.

The Bottom Line

In a nutshell, Cyrela Brazil Realty Empreendimentos e Participações has been trudging along with the same returns from the same amount of capital over the last five years. Yet to long term shareholders the stock has gifted them an incredible 198% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Cyrela Brazil Realty Empreendimentos e Participações does have some risks, we noticed 3 warning signs (and 1 which is a bit unpleasant) we think you should know about.

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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