These Return Metrics Don't Make CVC Brasil Operadora e Agência de Viagens (BVMF:CVCB3) Look Too Strong

What financial metrics can indicate to us that a company is maturing or even in decline? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. On that note, looking into CVC Brasil Operadora e Agência de Viagens (BVMF:CVCB3), we weren't too upbeat about how things were going.

We've discovered 1 warning sign about CVC Brasil Operadora e Agência de Viagens. View them for free.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for CVC Brasil Operadora e Agência de Viagens, this is the formula:

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

0.069 = R$91m ÷ (R$3.8b - R$2.5b) (Based on the trailing twelve months to December 2024).

Therefore, CVC Brasil Operadora e Agência de Viagens has an ROCE of 6.9%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 8.8%.

See our latest analysis for CVC Brasil Operadora e Agência de Viagens

Above you can see how the current ROCE for CVC Brasil Operadora e Agência de Viagens 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 CVC Brasil Operadora e Agência de Viagens .

What The Trend Of ROCE Can Tell Us

In terms of CVC Brasil Operadora e Agência de Viagens' historical ROCE trend, it isn't fantastic. Unfortunately, returns have declined substantially over the last five years to the 6.9% we see today. On top of that, the business is utilizing 46% less capital within its operations. The fact that both are shrinking is an indication that the business is going through some tough times. Typically businesses that exhibit these characteristics aren't the ones that tend to multiply over the long term, because statistically speaking, they've already gone through the growth phase of their life cycle.

Another thing to note, CVC Brasil Operadora e Agência de Viagens has a high ratio of current liabilities to total assets of 66%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

In short, lower returns and decreasing amounts capital employed in the business doesn't fill us with confidence. This could explain why the stock has sunk a total of 79% in the last five years. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

One more thing, we've spotted 1 warning sign facing CVC Brasil Operadora e Agência de Viagens that you might find interesting.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.