The Returns At Equatorial Maranhão Distribuidora de Energia (BVMF:EQMA3B) Aren't Growing

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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 Equatorial Maranhão Distribuidora de Energia (BVMF:EQMA3B) looks decent, right now, so lets see what the trend of returns can tell us.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Equatorial Maranhão Distribuidora de Energia, this is the formula:

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

0.17 = R$1.1b ÷ (R$8.3b - R$1.9b) (Based on the trailing twelve months to March 2023).

So, Equatorial Maranhão Distribuidora de Energia has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Electric Utilities industry average of 12% it's much better.

View our latest analysis for Equatorial Maranhão Distribuidora de Energia

Historical performance is a great place to start when researching a stock so above you can see the gauge for Equatorial Maranhão Distribuidora de Energia's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Equatorial Maranhão Distribuidora de Energia, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

While the returns on capital are good, they haven't moved much. The company has consistently earned 17% for the last five years, and the capital employed within the business has risen 25% in that time. 17% is a pretty standard return, and it provides some comfort knowing that Equatorial Maranhão Distribuidora de Energia has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

What We Can Learn From Equatorial Maranhão Distribuidora de Energia's ROCE

In the end, Equatorial Maranhão Distribuidora de Energia has proven its ability to adequately reinvest capital at good rates of return. And the stock has followed suit returning a meaningful 44% to shareholders 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.

One more thing to note, we've identified 2 warning signs with Equatorial Maranhão Distribuidora de Energia and understanding them should be part of your investment process.

While Equatorial Maranhão Distribuidora de 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.