Companhia Distribuidora de Gás do Rio de Janeiro - CEG (BVMF:CEGR3) Is Reinvesting To Multiply In Value

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. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Companhia Distribuidora de Gás do Rio de Janeiro - CEG (BVMF:CEGR3) looks attractive right now, so lets see what the trend of returns can tell us.

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. To calculate this metric for Companhia Distribuidora de Gás do Rio de Janeiro - CEG, this is the formula:

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

0.26 = R$612m ÷ (R$3.4b - R$1.0b) (Based on the trailing twelve months to December 2020).

Thus, Companhia Distribuidora de Gás do Rio de Janeiro - CEG has an ROCE of 26%. In absolute terms that's a great return and it's even better than the Gas Utilities industry average of 7.6%.

View our latest analysis for Companhia Distribuidora de Gás do Rio de Janeiro - CEG

Historical performance is a great place to start when researching a stock so above you can see the gauge for Companhia Distribuidora de Gás do Rio de Janeiro - CEG's ROCE against it's prior returns. If you're interested in investigating Companhia Distribuidora de Gás do Rio de Janeiro - CEG's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Companhia Distribuidora de Gás do Rio de Janeiro - CEG's ROCE Trend?

In terms of Companhia Distribuidora de Gás do Rio de Janeiro - CEG's history of ROCE, it's quite impressive. The company has consistently earned 26% for the last five years, and the capital employed within the business has risen 33% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. You'll see this when looking at well operated businesses or favorable business models.

The Bottom Line On Companhia Distribuidora de Gás do Rio de Janeiro - CEG's ROCE

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. On top of that, the stock has rewarded shareholders with a remarkable 206% return to those who've held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Like most companies, Companhia Distribuidora de Gás do Rio de Janeiro - CEG does come with some risks, and we've found 2 warning signs that you should be aware of.

Companhia Distribuidora de Gás do Rio de Janeiro - CEG is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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