Under The Bonnet, Dexxos Participações' (BVMF:DEXP3) Returns Look Impressive

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 Dexxos Participações (BVMF:DEXP3) looks great, so lets see what the trend can tell us.

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. 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$331m ÷ (R$1.3b - R$314m) (Based on the trailing twelve months to June 2022).

Therefore, Dexxos Participações has an ROCE of 33%. In absolute terms that's a very respectable return and compared to the Chemicals industry average of 28% it's pretty much on par.

Check out our latest analysis for Dexxos Participações

Above you can see how the current ROCE for Dexxos Participações compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Dexxos Participações Tell Us?

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 company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 72%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From 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. Since the stock has returned a staggering 884% to shareholders over the last five years, it looks like investors are recognizing these changes. 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 5 warning signs we've spotted with Dexxos Participações (including 2 which are potentially serious) .

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.