Investors Will Want Equatorial Pará Distribuidora de Energia's (BVMF:EQPA3) Growth In ROCE To Persist

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Equatorial Pará Distribuidora de Energia (BVMF:EQPA3) so let's look a bit deeper.

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)

0.17 = R$1.5b ÷ (R$13b - R$3.7b) (Based on the trailing twelve months to September 2021).

So, Equatorial Pará 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 13% it's much better.

View 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 want to delve into the historical earnings, revenue and cash flow of Equatorial Pará Distribuidora de Energia, check out these free graphs here.

How Are Returns Trending?

Equatorial Pará Distribuidora de Energia is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 17%. The amount of capital employed has increased too, by 83%. So we're very much inspired by what we're seeing at Equatorial Pará Distribuidora de Energia thanks to its ability to profitably reinvest capital.

The Bottom Line On 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. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a separate note, we've found 3 warning signs for Equatorial Pará Distribuidora de Energia you'll probably want to know about.

While Equatorial Pará Distribuidora de Energia isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.