Equatorial Pará Distribuidora de Energia (BVMF:EQPA3) Is Achieving High Returns On Its Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. So when we looked at the ROCE trend of Equatorial Pará Distribuidora de Energia (BVMF:EQPA3) we really liked what we saw.

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. To calculate this metric for Equatorial Pará Distribuidora de Energia, this is the formula:

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

0.23 = R$2.9b ÷ (R$17b - R$4.5b) (Based on the trailing twelve months to September 2024).

Thus, Equatorial Pará Distribuidora de Energia has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.

Check out our latest analysis for Equatorial Pará Distribuidora de Energia

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'd like to look at how Equatorial Pará Distribuidora de Energia has performed in the past in other metrics, you can view this free graph of Equatorial Pará Distribuidora de Energia's past earnings, revenue and cash flow.

So How Is Equatorial Pará Distribuidora de Energia's ROCE Trending?

Equatorial Pará Distribuidora de Energia is displaying some positive trends. 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 52%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From Equatorial Pará Distribuidora de Energia'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 Equatorial Pará Distribuidora de Energia has. Since the stock has returned a staggering 127% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Equatorial Pará Distribuidora de Energia can keep these trends up, it could have a bright future ahead.

On a final note, we found 3 warning signs for Equatorial Pará Distribuidora de Energia (1 is a bit unpleasant) you should be aware of.

Equatorial Pará Distribuidora de Energia 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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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.