We Like These Underlying Return On Capital Trends At Anima Holding (BVMF:ANIM3)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Anima Holding (BVMF:ANIM3) looks quite promising in regards to its trends of return on capital.

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

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)

0.061 = R$523m ÷ (R$10b - R$1.9b) (Based on the trailing twelve months to September 2022).

So, Anima Holding has an ROCE of 6.1%. Ultimately, that's a low return and it under-performs the Consumer Services industry average of 8.0%.

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 to see what analysts are forecasting going forward, you should check out our free report for Anima Holding.

What Does the ROCE Trend For Anima Holding Tell Us?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 6.1%. Basically the business is earning more per dollar of capital invested and in addition to that, 646% more capital is being employed now too. So we're very much inspired by what we're seeing at Anima Holding thanks to its ability to profitably reinvest capital.

The Key Takeaway

All in all, it's terrific to see that Anima Holding is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 54% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

Like most companies, Anima Holding does come with some risks, and we've found 1 warning sign that you should be aware of.

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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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.