Returns On Capital Are A Standout For Dexxos Participações (BVMF:DEXP3)

What trends should we look for it we want to identify stocks that can 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Dexxos Participações (BVMF:DEXP3) looks great, so lets see what the trend can tell us.

What is 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. To calculate this metric for Dexxos Participações, this is the formula:

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

0.33 = R$289m ÷ (R$1.3b - R$429m) (Based on the trailing twelve months to December 2021).

Therefore, Dexxos Participações has an ROCE of 33%. On its own that's a fantastic return on capital, though it's the same as the Chemicals industry average of 33%.

View our latest analysis for Dexxos Participações

Historical performance is a great place to start when researching a stock so above you can see the gauge for Dexxos Participações' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Dexxos Participações, check out these free graphs here.

So How Is Dexxos Participações' ROCE Trending?

The trends we've noticed at Dexxos Participações are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 33%. The amount of capital employed has increased too, by 84%. So we're very much inspired by what we're seeing at Dexxos Participações thanks to its ability to profitably reinvest capital.

The Bottom Line On Dexxos Participações' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Dexxos Participações has. And a remarkable 710% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Dexxos Participações can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 4 warning signs we've spotted with Dexxos Participações (including 2 which are potentially serious) .

Dexxos Participações is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.