Returns At d1000 Varejo Farma Participações (BVMF:DMVF3) Are On The Way Up

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at d1000 Varejo Farma Participações (BVMF:DMVF3) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for d1000 Varejo Farma Participações:

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

0.055 = R$69m ÷ (R$1.7b - R$479m) (Based on the trailing twelve months to September 2024).

Therefore, d1000 Varejo Farma Participações has an ROCE of 5.5%. Ultimately, that's a low return and it under-performs the Consumer Retailing industry average of 10%.

Check out our latest analysis for d1000 Varejo Farma Participações

Above you can see how the current ROCE for d1000 Varejo Farma Participações compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for d1000 Varejo Farma Participações .

How Are Returns Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 5.5%. The amount of capital employed has increased too, by 68%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line

To sum it up, d1000 Varejo Farma Participações has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 57% awarded to those who held the stock over the last three years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if d1000 Varejo Farma Participações can keep these trends up, it could have a bright future ahead.

d1000 Varejo Farma Participações does have some risks though, and we've spotted 1 warning sign for d1000 Varejo Farma Participações that you might be interested in.

While d1000 Varejo Farma Participações 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.