Santos Brasil Participações (BVMF:STBP3) 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Santos Brasil Participações (BVMF:STBP3) looks quite promising in regards to its trends of return on capital.

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 Santos Brasil Participações is:

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

0.15 = R$568m ÷ (R$4.3b - R$610m) (Based on the trailing twelve months to December 2022).

Thus, Santos Brasil Participações has an ROCE of 15%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Infrastructure industry average of 14%.

Check out our latest analysis for Santos Brasil Participações

Above you can see how the current ROCE for Santos Brasil Participações 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 Santos Brasil Participações.

What Does the ROCE Trend For Santos Brasil Participações Tell Us?

Santos Brasil Participações is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 15%. 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 54%. 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.

What We Can Learn From Santos Brasil Participações' ROCE

All in all, it's terrific to see that Santos Brasil Participações is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Santos Brasil Participações can keep these trends up, it could have a bright future ahead.

Santos Brasil Participações does have some risks though, and we've spotted 1 warning sign for Santos Brasil Participações that you might be interested in.

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.