Companhiade Eletricidade do Estado da Bahia - COELBA (BVMF:CEEB3) Has More To Do To Multiply In Value Going Forward

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over Companhiade Eletricidade do Estado da Bahia - COELBA's (BVMF:CEEB3) trend of ROCE, we liked what we saw.

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 Companhiade Eletricidade do Estado da Bahia - COELBA is:

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

0.11 = R$1.8b ÷ (R$21b - R$3.5b) (Based on the trailing twelve months to December 2020).

So, Companhiade Eletricidade do Estado da Bahia - COELBA has an ROCE of 11%. That's a pretty standard return and it's in line with the industry average of 11%.

Check out our latest analysis for Companhiade 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 Companhiade Eletricidade do Estado da Bahia - COELBA's ROCE against it's prior returns. If you're interested in investigating Companhiade Eletricidade do Estado da Bahia - COELBA's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

While the current returns on capital are decent, they haven't changed much. The company has employed 118% more capital in the last five years, and the returns on that capital have remained stable at 11%. Since 11% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Key Takeaway

To sum it up, Companhiade Eletricidade do Estado da Bahia - COELBA has simply been reinvesting capital steadily, at those decent rates of return. On top of that, the stock has rewarded shareholders with a remarkable 118% return to those who've held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

On a separate note, we've found 1 warning sign for Companhiade Eletricidade do Estado da Bahia - COELBA you'll probably want to know about.

While Companhiade 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. 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.
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