There's Been No Shortage Of Growth Recently For Santos Brasil Participações' (BVMF:STBP3) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. So when we looked at Santos Brasil Participações (BVMF:STBP3) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Santos Brasil Participações, this is the formula:

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

0.089 = R$374m ÷ (R$4.8b - R$563m) (Based on the trailing twelve months to December 2021).

So, Santos Brasil Participações has an ROCE of 8.9%. In absolute terms, that's a low return but it's around the Infrastructure industry average of 11%.

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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Santos Brasil Participações' ROCE Trend?

Santos Brasil Participações has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 8.9% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Santos Brasil Participações is utilizing 160% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

Our Take On Santos Brasil Participações' ROCE

Long story short, we're delighted to see that Santos Brasil Participações' reinvestment activities have paid off and the company is now profitable. And a remarkable 238% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.

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.