Returns On Capital Signal Tricky Times Ahead For Intelbras - Indústria de Telecomunicação Eletrônica Brasileira (BVMF:INTB3)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Intelbras - Indústria de Telecomunicação Eletrônica Brasileira (BVMF:INTB3) and its ROCE trend, we weren't exactly thrilled.

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Understanding Return On Capital Employed (ROCE)

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. 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)

0.14 = R$544m ÷ (R$5.6b - R$1.8b) (Based on the trailing twelve months to December 2024).

So, Intelbras - Indústria de Telecomunicação Eletrônica Brasileira has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 6.7% generated by the Communications industry.

View our latest analysis for Intelbras - Indústria de Telecomunicação Eletrônica Brasileira

Above you can see how the current ROCE for Intelbras - Indústria de Telecomunicação Eletrônica Brasileira 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 analyst report for Intelbras - Indústria de Telecomunicação Eletrônica Brasileira .

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

In terms of Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 19%, but since then they've fallen to 14%. 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.

In Conclusion...

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Intelbras - Indústria de Telecomunicação Eletrônica Brasileira. However, despite the promising trends, the stock has fallen 52% over the last three years, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

One final note, you should learn about the 2 warning signs we've spotted with Intelbras - Indústria de Telecomunicação Eletrônica Brasileira (including 1 which is significant) .

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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.