Under The Bonnet, SLC Agrícola's (BVMF:SLCE3) Returns Look Impressive

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of SLC Agrícola (BVMF:SLCE3) looks great, so lets see what the trend can tell us.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for SLC Agrícola, this is the formula:

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

0.24 = R$2.5b ÷ (R$15b - R$4.6b) (Based on the trailing twelve months to December 2022).

So, SLC Agrícola has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 9.1% earned by companies in a similar industry.

Check out 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.

The Trend Of ROCE

The trends we've noticed at SLC Agrícola are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 24%. The amount of capital employed has increased too, by 183%. So we're very much inspired by what we're seeing at SLC Agrícola thanks to its ability to profitably reinvest capital.

The Bottom Line 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. And a remarkable 246% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing: We've identified 3 warning signs with SLC Agrícola (at least 2 which are a bit unpleasant) , and understanding them would certainly be useful.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.