Companhia de Eletricidade do Estado da Bahia - COELBA's (BVMF:CEEB3) Returns On Capital Are Heading Higher

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Companhia de Eletricidade do Estado da Bahia - COELBA (BVMF:CEEB3) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

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. 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)

0.15 = R$2.7b ÷ (R$23b - R$5.5b) (Based on the trailing twelve months to September 2021).

Thus, Companhia de Eletricidade do Estado da Bahia - COELBA has an ROCE of 15%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Electric Utilities industry average of 13%.

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

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 Companhia de Eletricidade do Estado da Bahia - COELBA has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

We like the trends that we're seeing from Companhia de Eletricidade do Estado da Bahia - COELBA. The data shows that returns on capital have increased substantially over the last five years to 15%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 150%. 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.

The Bottom Line

In summary, it's great to see that Companhia de Eletricidade do Estado da Bahia - COELBA can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 64% return over the last three years. 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.

If you want to know some of the risks facing Companhia de Eletricidade do Estado da Bahia - COELBA we've found 3 warning signs (2 are potentially serious!) that you should be aware of before investing here.

While Companhia de Eletricidade do Estado da Bahia - COELBA 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.