Returns Are Gaining Momentum At Companhiade Eletricidade do Estado da Bahia - COELBA (BVMF:CEEB3)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Companhiade 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)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Companhiade Eletricidade do Estado da Bahia - COELBA:

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

0.13 = R$2.3b ÷ (R$23b - R$4.9b) (Based on the trailing twelve months to June 2021).

Thus, Companhiade Eletricidade do Estado da Bahia - COELBA has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Electric Utilities industry average of 12%.

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'd like to look at how Companhiade 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.

What The Trend Of ROCE Can Tell Us

The trends we've noticed at Companhiade Eletricidade do Estado da Bahia - COELBA are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 13%. 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 143%. So we're very much inspired by what we're seeing at Companhiade Eletricidade do Estado da Bahia - COELBA thanks to its ability to profitably reinvest capital.

In Conclusion...

To sum it up, Companhiade Eletricidade do Estado da Bahia - COELBA has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Companhiade Eletricidade do Estado da Bahia - COELBA can keep these trends up, it could have a bright future ahead.

Companhiade Eletricidade do Estado da Bahia - COELBA does have some risks, we noticed 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should 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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