Ampla Energia e Serviços' (BVMF:CBEE3) Returns Have Hit A Wall

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Ampla Energia e Serviços (BVMF:CBEE3), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Ampla Energia e Serviços, this is the formula:

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

0.085 = R$781m ÷ (R$18b - R$8.9b) (Based on the trailing twelve months to June 2024).

Therefore, Ampla Energia e Serviços has an ROCE of 8.5%. In absolute terms, that's a low return and it also under-performs the Electric Utilities industry average of 11%.

See our latest analysis for Ampla Energia e Serviços

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Ampla Energia e Serviços has performed in the past in other metrics, you can view this free graph of Ampla Energia e Serviços' past earnings, revenue and cash flow.

The Trend Of ROCE

There hasn't been much to report for Ampla Energia e Serviços' returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Ampla Energia e Serviços to be a multi-bagger going forward.

On another note, while the change in ROCE trend might not scream for attention, it's interesting that the current liabilities have actually gone up over the last five years. This is intriguing because if current liabilities hadn't increased to 49% of total assets, this reported ROCE would probably be less than8.5% because total capital employed would be higher.The 8.5% ROCE could be even lower if current liabilities weren't 49% of total assets, because the the formula would show a larger base of total capital employed. Additionally, this high level of current liabilities isn't ideal because it means the company's suppliers (or short-term creditors) are effectively funding a large portion of the business.

Our Take On Ampla Energia e Serviços' ROCE

We can conclude that in regards to Ampla Energia e Serviços' returns on capital employed and the trends, there isn't much change to report on. And in the last five years, the stock has given away 32% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Ampla Energia e Serviços does have some risks though, and we've spotted 3 warning signs for Ampla Energia e Serviços that you might be interested in.

While Ampla Energia e Serviços 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.