Vamos Locação de Caminhões Máquinas e Equipamentos (BVMF:VAMO3) Hasn't Managed To Accelerate Its Returns

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. That's why when we briefly looked at Vamos Locação de Caminhões Máquinas e Equipamentos' (BVMF:VAMO3) ROCE trend, we were pretty happy with what we saw.

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. To calculate this metric for Vamos Locação de Caminhões Máquinas e Equipamentos, this is the formula:

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

0.11 = R$1.4b ÷ (R$15b - R$3.0b) (Based on the trailing twelve months to September 2022).

Thus, Vamos Locação de Caminhões Máquinas e Equipamentos has an ROCE of 11%. By itself that's a normal return on capital and it's in line with the industry's average returns of 11%.

View our latest analysis for Vamos Locação de Caminhões Máquinas e Equipamentos

Above you can see how the current ROCE for Vamos Locação de Caminhões Máquinas e Equipamentos 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 Vamos Locação de Caminhões Máquinas e Equipamentos here for free.

What Does the ROCE Trend For Vamos Locação de Caminhões Máquinas e Equipamentos Tell Us?

While the current returns on capital are decent, they haven't changed much. The company has employed 728% more capital in the last four years, and the returns on that capital have remained stable at 11%. 11% is a pretty standard return, and it provides some comfort knowing that Vamos Locação de Caminhões Máquinas e Equipamentos has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

In Conclusion...

In the end, Vamos Locação de Caminhões Máquinas e Equipamentos has proven its ability to adequately reinvest capital at good rates of return. However, despite the favorable fundamentals, the stock has fallen 17% over the last year, so there might be an opportunity here for astute investors. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

Vamos Locação de Caminhões Máquinas e Equipamentos does have some risks, we noticed 4 warning signs (and 2 which are significant) we think you should know about.

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.