Return Trends At Engie Brasil Energia (BVMF:EGIE3) Aren't Appealing

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at Engie Brasil Energia's (BVMF:EGIE3) ROCE trend, we were pretty happy with what we saw.

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 Engie Brasil Energia is:

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

0.18 = R$5.8b ÷ (R$39b - R$5.9b) (Based on the trailing twelve months to September 2021).

Thus, Engie Brasil Energia has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 7.8% generated by the Renewable Energy industry.

See our latest analysis for Engie Brasil Energia

In the above chart we have measured Engie Brasil Energia's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Engie Brasil Energia here for free.

The Trend Of ROCE

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 18% and the business has deployed 158% more capital into its operations. 18% is a pretty standard return, and it provides some comfort knowing that Engie Brasil Energia has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

What We Can Learn From Engie Brasil Energia's ROCE

To sum it up, Engie Brasil Energia has simply been reinvesting capital steadily, at those decent rates of return. And the stock has followed suit returning a meaningful 88% to shareholders 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 final note, we found 2 warning signs for Engie Brasil Energia (1 is a bit unpleasant) you should be aware of.

While Engie Brasil Energia may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.