Investors Met With Slowing Returns on Capital At Movida Participações (BVMF:MOVI3)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Movida Participações (BVMF:MOVI3), we don't think it's current trends fit the mold of a multi-bagger.

What Is 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. The formula for this calculation on Movida Participações is:

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

0.074 = R$1.5b ÷ (R$28b - R$7.2b) (Based on the trailing twelve months to June 2024).

Therefore, Movida Participações has an ROCE of 7.4%. In absolute terms, that's a low return and it also under-performs the Transportation industry average of 12%.

See our latest analysis for Movida Participações

In the above chart we have measured Movida Participações' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Movida Participações .

How Are Returns Trending?

The returns on capital haven't changed much for Movida Participações in recent years. The company has consistently earned 7.4% for the last five years, and the capital employed within the business has risen 357% in that time. 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.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 26% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk.

In Conclusion...

In conclusion, Movida Participações has been investing more capital into the business, but returns on that capital haven't increased. And in the last five years, the stock has given away 55% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Movida Participações has the makings of a multi-bagger.

Movida Participações does have some risks, we noticed 3 warning signs (and 2 which are a bit concerning) we think you should know about.

While Movida Participações 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.

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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.