Capital Allocation Trends At Intelbras - Indústria de Telecomunicação Eletrônica Brasileira (BVMF:INTB3) Aren't Ideal

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Intelbras - Indústria de Telecomunicação Eletrônica Brasileira (BVMF:INTB3), it didn't seem to tick all of these boxes.

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. The formula for this calculation on Intelbras - Indústria de Telecomunicação Eletrônica Brasileira is:

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

0.15 = R$514m ÷ (R$4.8b - R$1.4b) (Based on the trailing twelve months to June 2023).

So, Intelbras - Indústria de Telecomunicação Eletrônica Brasileira has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 7.5% generated by the Communications industry.

Check out our latest analysis for Intelbras - Indústria de Telecomunicação Eletrônica Brasileira

In the above chart we have measured Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Intelbras - Indústria de Telecomunicação Eletrônica Brasileira.

What Can We Tell From Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's ROCE Trend?

When we looked at the ROCE trend at Intelbras - Indústria de Telecomunicação Eletrônica Brasileira, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 15% from 25% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

On a side note, Intelbras - Indústria de Telecomunicação Eletrônica Brasileira has done well to pay down its current liabilities to 29% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

The Bottom Line On Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's ROCE

While returns have fallen for Intelbras - Indústria de Telecomunicação Eletrônica Brasileira in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. However, despite the promising trends, the stock has fallen 16% over the last year, so there might be an opportunity here for astute investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

Intelbras - Indústria de Telecomunicação Eletrônica Brasileira does have some risks though, and we've spotted 1 warning sign for Intelbras - Indústria de Telecomunicação Eletrônica Brasileira that you might be interested in.

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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.