SLC Agrícola (BVMF:SLCE3) Is Doing The Right Things To Multiply Its Share Price

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, SLC Agrícola (BVMF:SLCE3) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for SLC Agrícola:

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

0.18 = R$1.1b ÷ (R$9.1b - R$2.9b) (Based on the trailing twelve months to March 2021).

Thus, SLC Agrícola has an ROCE of 18%. That's a relatively normal return on capital, and it's around the 15% generated by the Food industry.

View our latest analysis for SLC Agrícola

In the above chart we have measured SLC Agrícola's 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 report for SLC Agrícola.

What Can We Tell From SLC Agrícola's ROCE Trend?

The trends we've noticed at SLC Agrícola are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 74% more capital is being employed now too. So we're very much inspired by what we're seeing at SLC Agrícola thanks to its ability to profitably reinvest capital.

Our Take On SLC Agrícola's ROCE

To sum it up, SLC Agrícola has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 747% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing to note, we've identified 2 warning signs with SLC Agrícola and understanding these should be part of your investment process.

While SLC Agrícola 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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