The Return Trends At Companhia de Eletricidade do Estado da Bahia - COELBA (BVMF:CEEB3) Look Promising

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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.

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. To calculate this metric for Companhia de Eletricidade do Estado da Bahia - COELBA, this is the formula:

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

0.17 = R$3.3b ÷ (R$27b - R$6.8b) (Based on the trailing twelve months to June 2023).

So, Companhia de Eletricidade do Estado da Bahia - COELBA has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 13% generated by the Electric Utilities industry.

View 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 want to delve into the historical earnings, revenue and cash flow of Companhia de Eletricidade do Estado da Bahia - COELBA, check out these free graphs here.

How Are Returns Trending?

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 17%. 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 81%. 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.

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

All in all, it's terrific to see that Companhia de Eletricidade do Estado da Bahia - COELBA is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

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 concerning) .

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.

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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.