EZTEC Empreendimentos e Participações (BVMF:EZTC3) Is Looking To Continue Growing Its Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. 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. Analysts use this formula to calculate it for EZTEC Empreendimentos e Participações:

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

0.035 = R$214m ÷ (R$6.4b - R$245m) (Based on the trailing twelve months to September 2024).

Thus, EZTEC Empreendimentos e Participações has an ROCE of 3.5%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 9.2%.

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 analyst report for EZTEC Empreendimentos e Participações .

So How Is EZTEC Empreendimentos e Participações' ROCE Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 3.5%. Basically the business is earning more per dollar of capital invested and in addition to that, 57% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what EZTEC Empreendimentos e Participações has. Although the company may be facing some issues elsewhere since the stock has plunged 72% in the last five years. Still, it's worth doing some further research to see if the trends will continue into the future.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for EZTC3 on our platform that is definitely worth checking out.

While EZTEC 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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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.