M. Dias Branco Indústria e Comércio de Alimentos (BVMF:MDIA3) Has Some Way To Go To Become A Multi-Bagger

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of M. Dias Branco Indústria e Comércio de Alimentos (BVMF:MDIA3) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding 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 M. Dias Branco Indústria e Comércio de Alimentos is:

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

0.11 = R$1.1b ÷ (R$12b - R$2.4b) (Based on the trailing twelve months to December 2023).

Thus, M. Dias Branco Indústria e Comércio de Alimentos has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 9.4% generated by the Food industry.

Check out our latest analysis for M. Dias Branco Indústria e Comércio de Alimentos

Above you can see how the current ROCE for M. Dias Branco Indústria e Comércio de Alimentos compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering M. Dias Branco Indústria e Comércio de Alimentos for free.

What Does the ROCE Trend For M. Dias Branco Indústria e Comércio de Alimentos Tell Us?

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 11% and the business has deployed 52% more capital into its operations. 11% is a pretty standard return, and it provides some comfort knowing that M. Dias Branco Indústria e Comércio de Alimentos has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

Our Take On M. Dias Branco Indústria e Comércio de Alimentos' ROCE

To sum it up, M. Dias Branco Indústria e Comércio de Alimentos has simply been reinvesting capital steadily, at those decent rates of return. In light of this, the stock has only gained 3.6% over the last five years for shareholders who have owned the stock in this period. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.

If you're still interested in M. Dias Branco Indústria e Comércio de Alimentos it's worth checking out our FREE intrinsic value approximation for MDIA3 to see if it's trading at an attractive price in other respects.

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.