We Like These Underlying Return On Capital Trends At Livetech da Bahia Indústria e Comércio (BVMF:LVTC3)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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 looked at Livetech da Bahia Indústria e Comércio (BVMF:LVTC3) and its trend of ROCE, we really liked what we saw.

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

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. Analysts use this formula to calculate it for Livetech da Bahia Indústria e Comércio:

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

0.16 = R$134m ÷ (R$1.3b - R$453m) (Based on the trailing twelve months to March 2022).

Therefore, Livetech da Bahia Indústria e Comércio has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 7.3% generated by the Communications industry.

View our latest analysis for Livetech da Bahia Indústria e Comércio

In the above chart we have measured Livetech da Bahia Indústria e Comércio'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 Livetech da Bahia Indústria e Comércio.

How Are Returns Trending?

Livetech da Bahia Indústria e Comércio is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 16%. The amount of capital employed has increased too, by 1,568%. So we're very much inspired by what we're seeing at Livetech da Bahia Indústria e Comércio thanks to its ability to profitably reinvest capital.

One more thing to note, Livetech da Bahia Indústria e Comércio has decreased current liabilities to 34% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

Our Take On Livetech da Bahia Indústria e Comércio's ROCE

In summary, it's great to see that Livetech da Bahia Indústria e Comércio can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And since the stock has dived 71% over the last year, there may be other factors affecting the company's prospects. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

On a final note, we found 5 warning signs for Livetech da Bahia Indústria e Comércio (2 are a bit concerning) you should be aware of.

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.

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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.