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

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. 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)

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 Santos Brasil Participações is:

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

0.12 = R$546m ÷ (R$5.0b - R$521m) (Based on the trailing twelve months to September 2022).

So, Santos Brasil Participações has an ROCE of 12%. By itself that's a normal return on capital and it's in line with the industry's average returns of 12%.

See 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, you can check out the forecasts from the analysts covering Santos Brasil Participações here for free.

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

We like the trends that we're seeing from Santos Brasil Participações. The data shows that returns on capital have increased substantially over the last five years to 12%. 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 172%. So we're very much inspired by what we're seeing at Santos Brasil Participações thanks to its ability to profitably reinvest capital.

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. Since the stock has returned a staggering 177% to shareholders over the last five years, it looks like investors are recognizing these changes. 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.

One more thing, we've spotted 1 warning sign facing Santos Brasil Participações that you might find interesting.

While Santos Brasil Participações 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.