OSX Brasil's (BVMF:OSXB3) Returns On Capital Are Heading Higher

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in OSX Brasil's (BVMF:OSXB3) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for OSX Brasil:

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

0.055 = R$104m ÷ (R$2.7b - R$825m) (Based on the trailing twelve months to September 2023).

Therefore, OSX Brasil has an ROCE of 5.5%. In absolute terms, that's a low return and it also under-performs the Energy Services industry average of 9.8%.

Check out our latest analysis for OSX Brasil

Historical performance is a great place to start when researching a stock so above you can see the gauge for OSX Brasil's ROCE against it's prior returns. If you're interested in investigating OSX Brasil's past further, check out this free graph covering OSX Brasil's past earnings, revenue and cash flow.

How Are Returns Trending?

We're delighted to see that OSX Brasil is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 5.5% on its capital. And unsurprisingly, like most companies trying to break into the black, OSX Brasil is utilizing 55% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line

To the delight of most shareholders, OSX Brasil has now broken into profitability. Considering the stock has delivered 6.0% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

One more thing to note, we've identified 4 warning signs with OSX Brasil and understanding them should be part of your investment process.

While OSX Brasil isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.