Can Vamos Locação de Caminhões, Máquinas e Equipamentos S.A.'s (BVMF:VAMO3) ROE Continue To Surpass The Industry Average?

While some investors are already well versed in financial metrics (hat tip), this article is for those who would like to learn about Return On Equity (ROE) and why it is important. To keep the lesson grounded in practicality, we'll use ROE to better understand Vamos Locação de Caminhões, Máquinas e Equipamentos S.A. (BVMF:VAMO3).

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

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How To Calculate Return On Equity?

ROE can be calculated by using the formula:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Vamos Locação de Caminhões Máquinas e Equipamentos is:

16% = R$415m ÷ R$2.6b (Based on the trailing twelve months to September 2025).

The 'return' is the income the business earned over the last year. So, this means that for every R$1 of its shareholder's investments, the company generates a profit of R$0.16.

Check out our latest analysis for Vamos Locação de Caminhões Máquinas e Equipamentos

Does Vamos Locação de Caminhões Máquinas e Equipamentos Have A Good ROE?

By comparing a company's ROE with its industry average, we can get a quick measure of how good it is. The limitation of this approach is that some companies are quite different from others, even within the same industry classification. As is clear from the image below, Vamos Locação de Caminhões Máquinas e Equipamentos has a better ROE than the average (10.0%) in the Transportation industry.

That's what we like to see. Bear in mind, a high ROE doesn't always mean superior financial performance. A higher proportion of debt in a company's capital structure may also result in a high ROE, where the high debt levels could be a huge risk . Our risks dashboardshould have the 3 risks we have identified for Vamos Locação de Caminhões Máquinas e Equipamentos.

The Importance Of Debt To Return On Equity

Companies usually need to invest money to grow their profits. That cash can come from issuing shares, retained earnings, or debt. In the first two cases, the ROE will capture this use of capital to grow. In the latter case, the debt used for growth will improve returns, but won't affect the total equity. That will make the ROE look better than if no debt was used.

Vamos Locação de Caminhões Máquinas e Equipamentos' Debt And Its 16% ROE

It appears that Vamos Locação de Caminhões Máquinas e Equipamentos makes extensive use of debt to improve its returns, because it has an alarmingly high debt to equity ratio of 6.33. Most investors would need a low share price to be interested in a company with low ROE and high debt to equity.

Summary

Return on equity is a useful indicator of the ability of a business to generate profits and return them to shareholders. In our books, the highest quality companies have high return on equity, despite low debt. If two companies have the same ROE, then I would generally prefer the one with less debt.

But when a business is high quality, the market often bids it up to a price that reflects this. The rate at which profits are likely to grow, relative to the expectations of profit growth reflected in the current price, must be considered, too. So you might want to check this FREE visualization of analyst forecasts for the company.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.

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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.