São Paulo Turismo (BVMF:AHEB3) Is Achieving High Returns On Its Capital

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. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of São Paulo Turismo (BVMF:AHEB3) we really liked what we saw.

Understanding 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 São Paulo Turismo is:

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

0.39 = R$160m ÷ (R$516m - R$107m) (Based on the trailing twelve months to September 2024).

Thus, São Paulo Turismo has an ROCE of 39%. That's a fantastic return and not only that, it outpaces the average of 7.4% earned by companies in a similar industry.

Check out our latest analysis for São Paulo Turismo

Historical performance is a great place to start when researching a stock so above you can see the gauge for São Paulo Turismo's ROCE against it's prior returns. If you'd like to look at how São Paulo Turismo has performed in the past in other metrics, you can view this free graph of São Paulo Turismo's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We're delighted to see that São Paulo Turismo is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 39% on its capital. Not only that, but the company is utilizing 101% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

Our Take On São Paulo Turismo's ROCE

Long story short, we're delighted to see that São Paulo Turismo's reinvestment activities have paid off and the company is now profitable. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 50% return over the last five years. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a final note, we found 2 warning signs for São Paulo Turismo (1 shouldn't be ignored) you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.