Many Would Be Envious Of CCR's (BVMF:CCRO3) Excellent Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. With that in mind, the ROCE of CCR (BVMF:CCRO3) looks attractive right now, so lets see what the trend of returns can tell us.

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 CCR is:

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

0.20 = R$8.4b ÷ (R$47b - R$4.7b) (Based on the trailing twelve months to March 2022).

Therefore, CCR has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Infrastructure industry average of 10%.

See our latest analysis for CCR

In the above chart we have measured CCR'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 CCR.

So How Is CCR's ROCE Trending?

It's hard not to be impressed by CCR's returns on capital. The company has consistently earned 20% for the last five years, and the capital employed within the business has risen 106% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If CCR can keep this up, we'd be very optimistic about its future.

On a side note, CCR has done well to reduce current liabilities to 9.9% 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 summary, we're delighted to see that CCR has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. Yet over the last five years the stock has declined 11%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

Like most companies, CCR does come with some risks, and we've found 3 warning signs that you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.