Companhia Energética do Rio Grande do Norte - COSERN (BVMF:CSRN3) Knows How To Allocate Capital Effectively

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Companhia Energética do Rio Grande do Norte - COSERN's (BVMF:CSRN3) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Companhia Energética do Rio Grande do Norte - COSERN is:

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

0.23 = R$845m ÷ (R$5.5b - R$1.8b) (Based on the trailing twelve months to June 2022).

Thus, Companhia Energética do Rio Grande do Norte - COSERN has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Electric Utilities industry average of 14%.

Check out our latest analysis for Companhia Energética do Rio Grande do Norte - COSERN

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Companhia Energética do Rio Grande do Norte - COSERN's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Companhia Energética do Rio Grande do Norte - COSERN's ROCE Trend?

Investors would be pleased with what's happening at Companhia Energética do Rio Grande do Norte - COSERN. The data shows that returns on capital have increased substantially over the last five years to 23%. The amount of capital employed has increased too, by 117%. So we're very much inspired by what we're seeing at Companhia Energética do Rio Grande do Norte - COSERN thanks to its ability to profitably reinvest capital.

The Bottom Line On Companhia Energética do Rio Grande do Norte - COSERN's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Companhia Energética do Rio Grande do Norte - COSERN has. And with a respectable 95% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Companhia Energética do Rio Grande do Norte - COSERN can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 2 warning signs for Companhia Energética do Rio Grande do Norte - COSERN you'll probably want to know about.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.