Returns On Capital At M. Dias Branco Indústria e Comércio de Alimentos (BVMF:MDIA3) Have Stalled

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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, when we ran our eye over M. Dias Branco Indústria e Comércio de Alimentos' (BVMF:MDIA3) trend of ROCE, we liked what we saw.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the 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)

0.12 = R$1.2b ÷ (R$12b - R$2.3b) (Based on the trailing twelve months to March 2024).

Therefore, M. Dias Branco Indústria e Comércio de Alimentos has an ROCE of 12%. That's a pretty standard return and it's in line with the industry average of 12%.

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

In the above chart we have measured M. Dias Branco Indústria e Comércio de 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 analyst report for M. Dias Branco Indústria e Comércio de Alimentos .

So How Is M. Dias Branco Indústria e Comércio de 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 12% and the business has deployed 53% more capital into its operations. Since 12% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. 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.

What We Can Learn From M. Dias Branco Indústria e Comércio de Alimentos' ROCE

In the end, M. Dias Branco Indústria e Comércio de Alimentos has proven its ability to adequately reinvest capital at good rates of return. Yet over the last five years the stock has declined 21%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

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.

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