EZTEC Empreendimentos e Participações' (BVMF:EZTC3) Returns On Capital Are Heading Higher

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. 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)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on EZTEC Empreendimentos e Participações is:

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

0.0099 = R$53m ÷ (R$5.8b - R$503m) (Based on the trailing twelve months to September 2023).

Therefore, EZTEC Empreendimentos e Participações has an ROCE of 1.0%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 6.3%.

View 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'd like to see what analysts are forecasting going forward, you should check out our free report for EZTEC Empreendimentos e Participações.

What Does the ROCE Trend For EZTEC Empreendimentos e Participações Tell Us?

We're delighted to see that EZTEC Empreendimentos e Participações 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 1.0% on its capital. And unsurprisingly, like most companies trying to break into the black, EZTEC Empreendimentos e Participações is utilizing 94% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

What We Can Learn From EZTEC Empreendimentos e Participações' ROCE

To the delight of most shareholders, EZTEC Empreendimentos e Participações has now broken into profitability. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a separate note, we've found 2 warning signs for EZTEC Empreendimentos e Participações you'll probably want to know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.