The Returns On Capital At M. Dias Branco Indústria e Comércio de Alimentos (BVMF:MDIA3) Don't Inspire Confidence

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. However, after briefly looking over the numbers, we don't think M. Dias Branco Indústria e Comércio de Alimentos (BVMF:MDIA3) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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What Is 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. 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)

0.08 = R$803m ÷ (R$13b - R$2.7b) (Based on the trailing twelve months to March 2025).

Therefore, M. Dias Branco Indústria e Comércio de Alimentos has an ROCE of 8.0%. On its own, that's a low figure but it's around the 9.5% average generated by the Food industry.

See 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'd like to see what analysts are forecasting going forward, you should check out 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?

When we looked at the ROCE trend at M. Dias Branco Indústria e Comércio de Alimentos, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 8.0% from 10% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

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

In summary, M. Dias Branco Indústria e Comércio de Alimentos is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 32% in the last five years. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

On a separate note, we've found 1 warning sign for M. Dias Branco Indústria e Comércio de Alimentos you'll probably want to know about.

While M. Dias Branco Indústria e Comércio de Alimentos 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.