Returns Are Gaining Momentum At Companhia CELG de Participações S/A (BVMF:GPAR3)

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. 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 Companhia CELG de Participações S/A's (BVMF:GPAR3) returns on capital, so let's have a look.

What is 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)

0.055 = R$76m ÷ (R$1.5b - R$135m) (Based on the trailing twelve months to September 2020).

Therefore, Companhia CELG de Participações S/A has an ROCE of 5.5%. In absolute terms, that's a low return and it also under-performs the Electric Utilities industry average of 11%.

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

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're interested in investigating Companhia CELG de Participações S/A's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

We're delighted to see that Companhia CELG de Participações S/A is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 5.5% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Companhia CELG de Participações S/A is utilizing 507% more capital than it was five years ago. 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.

One more thing to note, Companhia CELG de Participações S/A has decreased current liabilities to 8.8% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line On Companhia CELG de Participações S/A's ROCE

Overall, Companhia CELG de Participações S/A gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Companhia CELG de Participações S/A can keep these trends up, it could have a bright future ahead.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Companhia CELG de Participações S/A (of which 2 can't be ignored!) that you should know about.

While Companhia CELG de Participações S/A 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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