CCR (BVMF:CCRO3) Will Will Want To Turn Around Its Return Trends

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at CCR (BVMF:CCRO3), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What is it?

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 CCR is:

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

0.13 = R$3.5b ÷ (R$34b - R$7.1b) (Based on the trailing twelve months to March 2021).

Thus, CCR has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Infrastructure industry average of 6.7% it's much better.

Check out our latest analysis for CCR

Above you can see how the current ROCE for CCR 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 CCR.

The Trend Of ROCE

When we looked at the ROCE trend at CCR, we didn't gain much confidence. To be more specific, ROCE has fallen from 19% over the last five years. However it looks like CCR might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a side note, CCR has done well to pay down its current liabilities to 21% 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.

In Conclusion...

To conclude, we've found that CCR is reinvesting in the business, but returns have been falling. Unsurprisingly, the stock has only gained 10.0% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

CCR does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

While CCR isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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