EZTEC Empreendimentos e Participações (BVMF:EZTC3) Is Experiencing Growth In Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, EZTEC Empreendimentos e Participações (BVMF:EZTC3) 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 EZTEC Empreendimentos e Participações, this is the formula:

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

0.055 = R$258m ÷ (R$5.1b - R$360m) (Based on the trailing twelve months to March 2022).

Thus, EZTEC Empreendimentos e Participações has an ROCE of 5.5%. In absolute terms, that's a low return but it's around the Consumer Durables industry average of 6.6%.

See our latest analysis for EZTEC Empreendimentos e Participações

In the above chart we have measured EZTEC 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 EZTEC Empreendimentos e Participações' ROCE Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 5.5%. Basically the business is earning more per dollar of capital invested and in addition to that, 51% more capital is being employed now too. So we're very much inspired by what we're seeing at EZTEC Empreendimentos e Participações thanks to its ability to profitably reinvest capital.

What We Can Learn From EZTEC Empreendimentos e Participações' ROCE

In summary, it's great to see that EZTEC Empreendimentos e Participações can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Considering the stock has delivered 27% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you want to continue researching EZTEC Empreendimentos e Participações, you might be interested to know about the 1 warning sign that our analysis has discovered.

While EZTEC 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.