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

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Vamos Locação de Caminhões Máquinas e Equipamentos (BVMF:VAMO3) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding 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. The formula for this calculation on Vamos Locação de Caminhões Máquinas e Equipamentos is:

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

0.13 = R$2.1b ÷ (R$19b - R$2.8b) (Based on the trailing twelve months to September 2023).

Therefore, Vamos Locação de Caminhões Máquinas e Equipamentos has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Transportation industry average of 11%.

See 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 consistently earned 13% for the last five years, and the capital employed within the business has risen 1,007% in that time. Since 13% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. 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.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 14% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Bottom Line

To sum it up, Vamos Locação de Caminhões Máquinas e Equipamentos has simply been reinvesting capital steadily, at those decent rates of return. However, over the last three years, the stock hasn't provided much growth to shareholders in the way of total returns. 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 come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those don't sit too well with us...

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.