Returns At Triunfo Participações e Investimentos (BVMF:TPIS3) Are On The Way Up

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Triunfo Participações e Investimentos (BVMF:TPIS3) looks quite promising in regards to its trends of return on capital.

What Is 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 Triunfo Participações e Investimentos, this is the formula:

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

0.11 = R$270m ÷ (R$2.8b - R$411m) (Based on the trailing twelve months to September 2024).

Therefore, Triunfo Participações e Investimentos has an ROCE of 11%. In absolute terms, that's a pretty standard return but compared to the Infrastructure industry average it falls behind.

View our latest analysis for Triunfo Participações e Investimentos

Historical performance is a great place to start when researching a stock so above you can see the gauge for Triunfo Participações e Investimentos' ROCE against it's prior returns. If you're interested in investigating Triunfo Participações e Investimentos' past further, check out this free graph covering Triunfo Participações e Investimentos' past earnings, revenue and cash flow.

So How Is Triunfo Participações e Investimentos' ROCE Trending?

We're delighted to see that Triunfo Participações e Investimentos is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 11% on its capital. In addition to that, Triunfo Participações e Investimentos is employing 30% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

On a related note, the company's ratio of current liabilities to total assets has decreased to 15%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line

Long story short, we're delighted to see that Triunfo Participações e Investimentos' reinvestment activities have paid off and the company is now profitable. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. So researching this company further and determining whether or not these trends will continue seems justified.

One final note, you should learn about the 3 warning signs we've spotted with Triunfo Participações e Investimentos (including 1 which can't be ignored) .

While Triunfo Participações e Investimentos 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.