Capital Investment Trends At Vittia Fertilizantes e Biológicos (BVMF:VITT3) Look Strong

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. So, when we ran our eye over Vittia Fertilizantes e Biológicos' (BVMF:VITT3) trend of ROCE, we really liked what we saw.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Vittia Fertilizantes e Biológicos is:

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

0.28 = R$184m ÷ (R$963m - R$315m) (Based on the trailing twelve months to September 2022).

Therefore, Vittia Fertilizantes e Biológicos has an ROCE of 28%. In absolute terms that's a very respectable return and compared to the Chemicals industry average of 25% it's pretty much on par.

See our latest analysis for Vittia Fertilizantes e Biológicos

In the above chart we have measured Vittia Fertilizantes e Biológicos' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

We'd be pretty happy with returns on capital like Vittia Fertilizantes e Biológicos. Over the past four years, ROCE has remained relatively flat at around 28% and the business has deployed 202% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

One more thing to note, even though ROCE has remained relatively flat over the last four years, the reduction in current liabilities to 33% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Bottom Line On Vittia Fertilizantes e Biológicos' ROCE

In short, we'd argue Vittia Fertilizantes e Biológicos has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. Yet over the last year the stock has declined 12%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

While Vittia Fertilizantes e Biológicos looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether VITT3 is currently trading for a fair price.

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.