Boa Safra Sementes (BVMF:SOJA3) Is Doing The Right Things To Multiply Its Share Price

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Boa Safra Sementes (BVMF:SOJA3) so let's look a bit deeper.

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. The formula for this calculation on Boa Safra Sementes is:

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

0.14 = R$168m ÷ (R$1.7b - R$478m) (Based on the trailing twelve months to March 2023).

So, Boa Safra Sementes has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 9.6% it's much better.

Check out our latest analysis for Boa Safra Sementes

Historical performance is a great place to start when researching a stock so above you can see the gauge for Boa Safra Sementes' ROCE against it's prior returns. If you'd like to look at how Boa Safra Sementes has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

SWOT Analysis for Boa Safra Sementes

What The Trend Of ROCE Can Tell Us

Boa Safra Sementes is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 4,165% more capital is being employed now too. So we're very much inspired by what we're seeing at Boa Safra Sementes thanks to its ability to profitably reinvest capital.

On a related note, the company's ratio of current liabilities to total assets has decreased to 29%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line On Boa Safra Sementes' ROCE

In summary, it's great to see that Boa Safra Sementes can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Investors may not be impressed by the favorable underlying trends yet because over the last year the stock has only returned 5.5% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One more thing, we've spotted 1 warning sign facing Boa Safra Sementes that you might find interesting.

While Boa Safra Sementes may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.