EZTEC Empreendimentos e Participações (BVMF:EZTC3) Will Want To Turn Around Its Return Trends

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at EZTEC Empreendimentos e Participações (BVMF:EZTC3), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)

0.03 = R$153m ÷ (R$5.5b - R$476m) (Based on the trailing twelve months to December 2022).

Therefore, EZTEC Empreendimentos e Participações has an ROCE of 3.0%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 9.3%.

Check out our latest analysis for EZTEC Empreendimentos e Participações

Above you can see how the current ROCE for EZTEC Empreendimentos e Participações compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From EZTEC Empreendimentos e Participações' ROCE Trend?

In terms of EZTEC Empreendimentos e Participações' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 9.9% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On EZTEC Empreendimentos e Participações' ROCE

In summary, despite lower returns in the short term, we're encouraged to see that EZTEC Empreendimentos e Participações is reinvesting for growth and has higher sales as a result. These trends are starting to be recognized by investors since the stock has delivered a 4.1% gain to shareholders who've held over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

On a final note, we've found 2 warning signs for EZTEC Empreendimentos e Participações that we think you should be aware of.

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.