Investors Will Want Companhia CELG de Participações S/A's (BVMF:GPAR3) Growth In ROCE To Persist

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Companhia CELG de Participações S/A (BVMF:GPAR3) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Companhia CELG de Participações S/A:

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

0.099 = R$196m ÷ (R$2.1b - R$87m) (Based on the trailing twelve months to March 2021).

Thus, Companhia CELG de Participações S/A has an ROCE of 9.9%. On its own, that's a low figure but it's around the 12% average generated by the Electric Utilities industry.

See our latest analysis for Companhia CELG de Participações S/A

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

What The Trend Of ROCE Can Tell Us

The fact that Companhia CELG de Participações S/A is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 9.9% on its capital. In addition to that, Companhia CELG de Participações S/A is employing 1,238% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 4.2%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line

In summary, it's great to see that Companhia CELG de Participações S/A has managed to break into profitability and is continuing to reinvest in its business. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. 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.

If you'd like to know more about Companhia CELG de Participações S/A, we've spotted 2 warning signs, and 1 of them is a bit concerning.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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