Sequoia Logística e Transportes (BVMF:SEQL3) Will Be Hoping To Turn Its Returns On Capital Around

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Sequoia Logística e Transportes (BVMF:SEQL3) and its ROCE trend, we weren't exactly thrilled.

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. The formula for this calculation on Sequoia Logística e Transportes is:

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

0.039 = R$51m ÷ (R$2.0b - R$635m) (Based on the trailing twelve months to September 2022).

Thus, Sequoia Logística e Transportes has an ROCE of 3.9%. Ultimately, that's a low return and it under-performs the Logistics industry average of 11%.

View our latest analysis for Sequoia Logística e Transportes

Above you can see how the current ROCE for Sequoia Logística e Transportes compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Sequoia Logística e Transportes' ROCE Trending?

When we looked at the ROCE trend at Sequoia Logística e Transportes, we didn't gain much confidence. To be more specific, ROCE has fallen from 9.6% over the last four years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

What We Can Learn From Sequoia Logística e Transportes' ROCE

While returns have fallen for Sequoia Logística e Transportes in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And there could be an opportunity here if other metrics look good too, because the stock has declined 69% in the last year. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

If you want to continue researching Sequoia Logística e Transportes, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Sequoia Logística e Transportes isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.