Companhia de Eletricidade do Estado da Bahia - COELBA (BVMF:CEEB3) Is Looking To Continue Growing Its Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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 Companhia de Eletricidade do Estado da Bahia - COELBA (BVMF:CEEB3) so let's look a bit deeper.

What Is 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. The formula for this calculation on Companhia de Eletricidade do Estado da Bahia - COELBA is:

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

0.18 = R$3.8b ÷ (R$28b - R$7.0b) (Based on the trailing twelve months to December 2023).

Therefore, Companhia de Eletricidade do Estado da Bahia - COELBA has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Electric Utilities industry average of 12% it's much better.

See our latest analysis for Companhia de Eletricidade do Estado da Bahia - COELBA

Historical performance is a great place to start when researching a stock so above you can see the gauge for Companhia de Eletricidade do Estado da Bahia - COELBA's ROCE against it's prior returns. If you'd like to look at how Companhia de Eletricidade do Estado da Bahia - COELBA has performed in the past in other metrics, you can view this free graph of Companhia de Eletricidade do Estado da Bahia - COELBA's past earnings, revenue and cash flow.

What Does the ROCE Trend For Companhia de Eletricidade do Estado da Bahia - COELBA Tell Us?

Investors would be pleased with what's happening at Companhia de Eletricidade do Estado da Bahia - COELBA. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 18%. The amount of capital employed has increased too, by 77%. So we're very much inspired by what we're seeing at Companhia de Eletricidade do Estado da Bahia - COELBA thanks to its ability to profitably reinvest capital.

Our Take On Companhia de Eletricidade do Estado da Bahia - COELBA's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Companhia de Eletricidade do Estado da Bahia - COELBA has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One final note, you should learn about the 2 warning signs we've spotted with Companhia de Eletricidade do Estado da Bahia - COELBA (including 1 which is potentially serious) .

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.