Shareholders Would Enjoy A Repeat Of Equatorial Pará Distribuidora de Energia's (BVMF:EQPA3) Recent Growth In Returns

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Equatorial Pará Distribuidora de Energia (BVMF:EQPA3) we really liked what we saw.

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

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. 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)

0.27 = R$3.0b ÷ (R$14b - R$3.3b) (Based on the trailing twelve months to September 2023).

So, Equatorial Pará Distribuidora de Energia has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Electric Utilities industry average of 12%.

See our latest analysis for Equatorial Pará Distribuidora de Energia

Historical performance is a great place to start when researching a stock so above you can see the gauge for Equatorial Pará Distribuidora de Energia's ROCE against it's prior returns. 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.

What Does the ROCE Trend For Equatorial Pará Distribuidora de Energia Tell Us?

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 27%. Basically the business is earning more per dollar of capital invested and in addition to that, 59% more capital is being employed now too. 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.

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. And a remarkable 350% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to know some of the risks facing Equatorial Pará Distribuidora de Energia we've found 3 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

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.

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.