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

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. 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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Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested 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)

0.098 = R$1.6b ÷ (R$19b - R$2.9b) (Based on the trailing twelve months to September 2025).

Therefore, Smartfit Escola de Ginástica e Dança has an ROCE of 9.8%. In absolute terms, that's a low return but it's around the Hospitality industry average of 9.4%.

Check out our latest analysis for Smartfit Escola de Ginástica e Dança

In the above chart we have measured Smartfit Escola de Ginástica e Dança'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 Smartfit Escola de Ginástica e Dança for free.

What The Trend Of ROCE Can Tell Us

We're delighted to see that Smartfit Escola de Ginástica e Dança 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 9.8% on its capital. In addition to that, Smartfit Escola de Ginástica e Dança is employing 139% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Bottom Line On Smartfit Escola de Ginástica e Dança's ROCE

To the delight of most shareholders, Smartfit Escola de Ginástica e Dança has now broken into profitability. And with a respectable 84% awarded to those who held the stock over the last three years, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we found 2 warning signs for Smartfit Escola de Ginástica e Dança (1 is potentially serious) 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.