The Returns On Capital At Plano & Plano Desenvolvimento Imobiliário (BVMF:PLPL3) Don't Inspire Confidence

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Plano & Plano Desenvolvimento Imobiliário (BVMF:PLPL3), it didn't seem to tick all of these boxes.

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 Plano & Plano Desenvolvimento Imobiliário, this is the formula:

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

0.12 = R$138m ÷ (R$1.4b - R$250m) (Based on the trailing twelve months to March 2022).

Thus, Plano & Plano Desenvolvimento Imobiliário has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 6.6% generated by the Consumer Durables industry.

View our latest analysis for Plano & Plano Desenvolvimento Imobiliário

Above you can see how the current ROCE for Plano & Plano Desenvolvimento Imobiliário compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Plano & Plano Desenvolvimento Imobiliário here for free.

What Can We Tell From Plano & Plano Desenvolvimento Imobiliário's ROCE Trend?

When we looked at the ROCE trend at Plano & Plano Desenvolvimento Imobiliário, we didn't gain much confidence. To be more specific, ROCE has fallen from 19% over the last four 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. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line On Plano & Plano Desenvolvimento Imobiliário's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Plano & Plano Desenvolvimento Imobiliário is reinvesting for growth and has higher sales as a result. However, despite the promising trends, the stock has fallen 41% over the last year, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

On a final note, we've found 4 warning signs for Plano & Plano Desenvolvimento Imobiliário that we think you should be aware of.

While Plano & Plano Desenvolvimento Imobiliário 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.