Will the Promising Trends At Unicasa Indústria de Móveis (BVMF:UCAS3) Continue?

What trends should we look for it we want to identify stocks that can 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. So on that note, Unicasa Indústria de Móveis (BVMF:UCAS3) 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. The formula for this calculation on Unicasa Indústria de Móveis is:

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

0.082 = R$13m ÷ (R$218m - R$55m) (Based on the trailing twelve months to September 2020).

Therefore, Unicasa Indústria de Móveis has an ROCE of 8.2%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.2%.

View our latest analysis for Unicasa Indústria de Móveis

Historical performance is a great place to start when researching a stock so above you can see the gauge for Unicasa Indústria de Móveis' ROCE against it's prior returns. If you're interested in investigating Unicasa Indústria de Móveis' past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We're delighted to see that Unicasa Indústria de Móveis is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but now it's turned around, earning 8.2% which is no doubt a relief for some early shareholders. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 23%. Unicasa Indústria de Móveis could be selling under-performing assets since the ROCE is improving.

The Bottom Line On Unicasa Indústria de Móveis' ROCE

From what we've seen above, Unicasa Indústria de Móveis has managed to increase it's returns on capital all the while reducing it's capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a separate note, we've found 2 warning signs for Unicasa Indústria de Móveis you'll probably want to know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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