Here's What To Make Of Livetech da Bahia Indústria e Comércio's (BVMF:LVTC3) Decelerating Rates Of Return

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Livetech da Bahia Indústria e Comércio (BVMF:LVTC3) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is 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 Livetech da Bahia Indústria e Comércio is:

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

0.085 = R$109m ÷ (R$1.7b - R$418m) (Based on the trailing twelve months to September 2022).

Therefore, Livetech da Bahia Indústria e Comércio has an ROCE of 8.5%. On its own, that's a low figure but it's around the 7.5% average generated by the Communications industry.

Check out our latest analysis for Livetech da Bahia Indústria e Comércio

Above you can see how the current ROCE for Livetech da Bahia Indústria e Comércio compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Livetech da Bahia Indústria e Comércio.

What Does the ROCE Trend For Livetech da Bahia Indústria e Comércio Tell Us?

In terms of Livetech da Bahia Indústria e Comércio's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 8.5% for the last five years, and the capital employed within the business has risen 994% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

On a side note, Livetech da Bahia Indústria e Comércio has done well to reduce current liabilities to 25% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

In Conclusion...

In conclusion, Livetech da Bahia Indústria e Comércio has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has declined 42% over the last year, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Livetech da Bahia Indústria e Comércio has the makings of a multi-bagger.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 6 warning signs for Livetech da Bahia Indústria e Comércio (of which 2 are potentially serious!) that you should know about.

While Livetech da Bahia Indústria e Comércio may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.