There's Been No Shortage Of Growth Recently For Rede Energia Participações' (BVMF:REDE3) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. So when we looked at Rede Energia Participações (BVMF:REDE3) and its trend of ROCE, we really liked what we saw.

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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. To calculate this metric for Rede Energia Participações, this is the formula:

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

0.15 = R$3.6b ÷ (R$30b - R$5.8b) (Based on the trailing twelve months to March 2025).

Therefore, Rede Energia Participações has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 12% generated by the Electric Utilities industry.

View our latest analysis for Rede Energia Participações

Historical performance is a great place to start when researching a stock so above you can see the gauge for Rede Energia Participações' ROCE against it's prior returns. If you're interested in investigating Rede Energia Participações' past further, check out this free graph covering Rede Energia Participações' past earnings, revenue and cash flow.

The Trend Of ROCE

Rede Energia Participações is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 15%. Basically the business is earning more per dollar of capital invested and in addition to that, 55% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Rede Energia Participações' 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 Rede Energia Participações has. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to continue researching Rede Energia Participações, you might be interested to know about the 3 warning signs that our analysis has discovered.

While Rede Energia Participações may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.