Even Construtora e Incorporadora (BVMF:EVEN3) Is Looking To Continue Growing Its Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Even Construtora e Incorporadora (BVMF:EVEN3) looks quite promising in regards to its trends of return on capital.

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. Analysts use this formula to calculate it for Even Construtora e Incorporadora:

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

0.045 = R$217m ÷ (R$6.7b - R$1.9b) (Based on the trailing twelve months to March 2023).

Therefore, Even Construtora e Incorporadora has an ROCE of 4.5%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 7.4%.

See our latest analysis for Even Construtora e Incorporadora

In the above chart we have measured Even Construtora e Incorporadora's 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 Even Construtora e Incorporadora.

SWOT Analysis for Even Construtora e Incorporadora

What The Trend Of ROCE Can Tell Us

We're delighted to see that Even Construtora e Incorporadora is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 4.5% on its capital. In addition to that, Even Construtora e Incorporadora is employing 45% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Key Takeaway

Long story short, we're delighted to see that Even Construtora e Incorporadora's reinvestment activities have paid off and the company is now profitable. Since the stock has returned a staggering 108% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One final note, you should learn about the 2 warning signs we've spotted with Even Construtora e Incorporadora (including 1 which can't be ignored) .

While Even Construtora e Incorporadora 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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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.