What Can The Trends At CSU Cardsystem (BVMF:CARD3) Tell Us About Their Returns?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in CSU Cardsystem's (BVMF:CARD3) returns on capital, so let's have a look.

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 CSU Cardsystem, this is the formula:

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

0.18 = R$67m ÷ (R$524m - R$149m) (Based on the trailing twelve months to September 2020).

Thus, CSU Cardsystem has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the IT industry average of 6.2% it's much better.

See our latest analysis for CSU Cardsystem

In the above chart we have measured CSU Cardsystem's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering CSU Cardsystem here for free.

The Trend Of ROCE

CSU Cardsystem is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 18%. The amount of capital employed has increased too, by 35%. So we're very much inspired by what we're seeing at CSU Cardsystem thanks to its ability to profitably reinvest capital.

The Bottom Line On CSU Cardsystem's 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 CSU Cardsystem has. And a remarkable 564% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

CSU Cardsystem does have some risks though, and we've spotted 1 warning sign for CSU Cardsystem that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. 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.
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