Our Take On The Returns On Capital At Companhiade Eletricidade do Estado da Bahia - COELBA (BVMF:CEEB3)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Companhiade Eletricidade do Estado da Bahia - COELBA (BVMF:CEEB3) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed 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)

0.096 = R$1.6b ÷ (R$21b - R$3.8b) (Based on the trailing twelve months to September 2020).

Therefore, Companhiade Eletricidade do Estado da Bahia - COELBA has an ROCE of 9.6%. In absolute terms, that's a low return but it's around the Electric Utilities industry average of 11%.

View 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.

So How Is Companhiade Eletricidade do Estado da Bahia - COELBA's ROCE Trending?

In terms of Companhiade Eletricidade do Estado da Bahia - COELBA's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 14% over the last five years. However it looks like Companhiade Eletricidade do Estado da Bahia - COELBA might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From Companhiade Eletricidade do Estado da Bahia - COELBA's ROCE

To conclude, we've found that Companhiade Eletricidade do Estado da Bahia - COELBA is reinvesting in the business, but returns have been falling. Yet to long term shareholders the stock has gifted them an incredible 125% return in the last five years, so the market appears to be rosy about its future. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you want to continue researching Companhiade Eletricidade do Estado da Bahia - COELBA, you might be interested to know about the 1 warning sign that our analysis has discovered.

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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