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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at Camil Alimentos' (BVMF:CAML3) ROCE trend, we were pretty happy with what we saw.
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 Camil Alimentos, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = R$616m ÷ (R$6.6b - R$1.7b) (Based on the trailing twelve months to November 2020).
So, Camil Alimentos has an ROCE of 13%. That's a relatively normal return on capital, and it's around the 12% generated by the Food industry.
See our latest analysis for Camil Alimentos
In the above chart we have measured Camil Alimentos' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
So How Is Camil Alimentos' ROCE Trending?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 13% and the business has deployed 92% more capital into its operations. Since 13% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
The Key Takeaway
The main thing to remember is that Camil Alimentos has proven its ability to continually reinvest at respectable rates of return. And the stock has followed suit returning a meaningful 53% to shareholders over the last three years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
If you'd like to know more about Camil Alimentos, we've spotted 3 warning signs, and 1 of them makes us a bit uncomfortable.
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. 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.
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About BOVESPA:CAML3
Camil Alimentos
Engages in processing, production, packaging, and marketing of food products.
Very undervalued with solid track record.