There Are Reasons To Feel Uneasy About EcoRodovias Infraestrutura e Logística's (BVMF:ECOR3) Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think EcoRodovias Infraestrutura e Logística (BVMF:ECOR3) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. To calculate this metric for EcoRodovias Infraestrutura e Logística, this is the formula:

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

0.13 = R$1.5b ÷ (R$17b - R$5.8b) (Based on the trailing twelve months to September 2021).

Thus, EcoRodovias Infraestrutura e Logística has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 9.4% generated by the Infrastructure industry.

See our latest analysis for EcoRodovias Infraestrutura e Logística

Above you can see how the current ROCE for EcoRodovias Infraestrutura e Logística 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 EcoRodovias Infraestrutura e Logística.

How Are Returns Trending?

On the surface, the trend of ROCE at EcoRodovias Infraestrutura e Logística doesn't inspire confidence. Over the last five years, returns on capital have decreased to 13% from 22% five years ago. However it looks like EcoRodovias Infraestrutura e Logística 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.

The Bottom Line On EcoRodovias Infraestrutura e Logística's ROCE

In summary, EcoRodovias Infraestrutura e Logística is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 20% in the last five years. Therefore based on the analysis done in this article, we don't think EcoRodovias Infraestrutura e Logística 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 4 warning signs for EcoRodovias Infraestrutura e Logística (of which 2 don't sit too well with us!) that you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.