We Like These Underlying Return On Capital Trends At Ampla Energia e Serviços (BVMF:CBEE3)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Ampla Energia e Serviços (BVMF:CBEE3) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed 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)

0.054 = R$575m ÷ (R$16b - R$5.6b) (Based on the trailing twelve months to December 2021).

So, Ampla Energia e Serviços has an ROCE of 5.4%. Ultimately, that's a low return and it under-performs the Electric Utilities industry average of 13%.

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 want to delve into the historical earnings, revenue and cash flow of Ampla Energia e Serviços, check out these free graphs here.

What Does the ROCE Trend For Ampla Energia e Serviços Tell Us?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 5.4%. Basically the business is earning more per dollar of capital invested and in addition to that, 79% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In Conclusion...

All in all, it's terrific to see that Ampla Energia e Serviços is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 46% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

On a final note, we've found 2 warning signs for Ampla Energia e Serviços that we think you should be aware of.

While Ampla Energia e Serviços may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.