Under The Bonnet, Nutriplant Indústria e Comércio S/A's (BVMF:NUTR3) Returns Look Impressive

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 Nutriplant Indústria e Comércio S/A (BVMF:NUTR3) looks great, so lets see what the trend can tell us.

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

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 Nutriplant Indústria e Comércio S/A:

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

0.23 = R$16m ÷ (R$118m - R$50m) (Based on the trailing twelve months to September 2024).

Therefore, Nutriplant Indústria e Comércio S/A has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 11%.

View our latest analysis for Nutriplant Indústria e Comércio S/A

Historical performance is a great place to start when researching a stock so above you can see the gauge for Nutriplant Indústria e Comércio S/A's ROCE against it's prior returns. If you're interested in investigating Nutriplant Indústria e Comércio S/A's past further, check out this free graph covering Nutriplant Indústria e Comércio S/A's past earnings, revenue and cash flow.

What Can We Tell From Nutriplant Indústria e Comércio S/A's ROCE Trend?

Investors would be pleased with what's happening at Nutriplant Indústria e Comércio S/A. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 23%. The amount of capital employed has increased too, by 29%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 42% of the business, which is more than it was five years ago. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

What We Can Learn From Nutriplant Indústria e Comércio S/A's ROCE

In summary, it's great to see that Nutriplant Indústria e Comércio S/A 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. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

Nutriplant Indústria e Comércio S/A does have some risks though, and we've spotted 1 warning sign for Nutriplant Indústria e Comércio S/A that you might be interested in.

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.