EcoRodovias Infraestrutura e Logística (BVMF:ECOR3) Is Looking To Continue Growing Its Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. Speaking of which, we noticed some great changes in EcoRodovias Infraestrutura e Logística's (BVMF:ECOR3) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for EcoRodovias Infraestrutura e Logística:

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

0.16 = R$3.5b ÷ (R$29b - R$6.7b) (Based on the trailing twelve months to September 2024).

Thus, EcoRodovias Infraestrutura e Logística has an ROCE of 16%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Infrastructure industry average of 15%.

Check out our latest analysis for EcoRodovias Infraestrutura e Logística

In the above chart we have measured EcoRodovias Infraestrutura e Logística'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 analyst report for EcoRodovias Infraestrutura e Logística .

The Trend Of ROCE

The trends we've noticed at EcoRodovias Infraestrutura e Logística are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 16%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 174%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

One more thing to note, EcoRodovias Infraestrutura e Logística has decreased current liabilities to 23% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that EcoRodovias Infraestrutura e Logística has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what EcoRodovias Infraestrutura e Logística has. And since the stock has dived 70% over the last five years, there may be other factors affecting the company's prospects. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

One more thing to note, we've identified 3 warning signs with EcoRodovias Infraestrutura e Logística and understanding them should be part of your investment process.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.