Smartfit Escola de Ginástica e Dança's (BVMF:SMFT3) Returns On Capital Are Heading Higher

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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, Smartfit Escola de Ginástica e Dança (BVMF:SMFT3) looks quite promising in regards to its trends of return on capital.

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What Is 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 Smartfit Escola de Ginástica e Dança is:

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

0.081 = R$1.3b ÷ (R$18b - R$2.8b) (Based on the trailing twelve months to December 2024).

Therefore, Smartfit Escola de Ginástica e Dança has an ROCE of 8.1%. On its own, that's a low figure but it's around the 7.4% average generated by the Hospitality industry.

See our latest analysis for Smartfit Escola de Ginástica e Dança

Above you can see how the current ROCE for Smartfit Escola de Ginástica e Dança compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Smartfit Escola de Ginástica e Dança .

What The Trend Of ROCE Can Tell Us

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 8.1%. The amount of capital employed has increased too, by 149%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Smartfit Escola de Ginástica e Dança's ROCE

All in all, it's terrific to see that Smartfit Escola de Ginástica e Dança is reaping the rewards from prior investments and is growing its capital base. Investors may not be impressed by the favorable underlying trends yet because over the last three years the stock has only returned 11% to shareholders. So with that in mind, we think the stock deserves further research.

If you'd like to know more about Smartfit Escola de Ginástica e Dança, we've spotted 2 warning signs, and 1 of them shouldn't be ignored.

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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.