The Returns At Hidrovias do Brasil (BVMF:HBSA3) Aren't Growing

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Hidrovias do Brasil (BVMF:HBSA3) and its ROCE trend, we weren't exactly thrilled.

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 Hidrovias do Brasil is:

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

0.029 = R$165m ÷ (R$6.4b - R$652m) (Based on the trailing twelve months to June 2022).

Thus, Hidrovias do Brasil has an ROCE of 2.9%. In absolute terms, that's a low return and it also under-performs the Shipping industry average of 11%.

See our latest analysis for Hidrovias do Brasil

Above you can see how the current ROCE for Hidrovias do Brasil compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Hidrovias do Brasil here for free.

The Trend Of ROCE

There are better returns on capital out there than what we're seeing at Hidrovias do Brasil. Over the past five years, ROCE has remained relatively flat at around 2.9% and the business has deployed 79% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line

Long story short, while Hidrovias do Brasil has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has declined 50% over the last year, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

Hidrovias do Brasil could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

While Hidrovias do Brasil 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.