Equatorial Pará Distribuidora de Energia (BVMF:EQPA3) Is Investing Its Capital With Increasing Efficiency

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 Equatorial Pará Distribuidora de Energia's (BVMF:EQPA3) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Equatorial Pará Distribuidora de Energia:

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

0.23 = R$2.2b ÷ (R$13b - R$3.0b) (Based on the trailing twelve months to September 2022).

Therefore, Equatorial Pará Distribuidora de Energia 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 13%.

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 past earnings, revenue and cash flow.

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

The trends we've noticed at Equatorial Pará Distribuidora de Energia are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 23%. Basically the business is earning more per dollar of capital invested and in addition to that, 58% more capital is being employed now too. 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.

Our Take On Equatorial Pará Distribuidora de Energia's ROCE

All in all, it's terrific to see that Equatorial Pará Distribuidora de Energia is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 447% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a separate note, we've found 2 warning signs for Equatorial Pará Distribuidora de Energia you'll probably want to know about.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.