Returns On Capital At Anima Holding (BVMF:ANIM3) Paint An Interesting Picture

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. 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 Anima Holding (BVMF:ANIM3), 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. The formula for this calculation on Anima Holding is:

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

0.036 = R$117m ÷ (R$3.7b - R$443m) (Based on the trailing twelve months to September 2020).

So, Anima Holding has an ROCE of 3.6%. In absolute terms, that's a low return and it also under-performs the Consumer Services industry average of 8.4%.

Check out our latest analysis for Anima Holding

In the above chart we have measured Anima Holding's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Anima Holding here for free.

How Are Returns Trending?

When we looked at the ROCE trend at Anima Holding, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 3.6% from 9.8% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From Anima Holding's ROCE

While returns have fallen for Anima Holding in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And long term investors must be optimistic going forward because the stock has returned a huge 222% to shareholders in the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.

One final note, you should learn about the 3 warning signs we've spotted with Anima Holding (including 2 which shouldn't be ignored) .

While Anima Holding 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. 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.
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