Returns At Companhia de Saneamento Básico do Estado de São Paulo - SABESP (BVMF:SBSP3) Are On The Way Up

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. So on that note, Companhia de Saneamento Básico do Estado de São Paulo - SABESP (BVMF:SBSP3) looks quite promising in regards to its trends of return on capital.

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Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Companhia de Saneamento Básico do Estado de São Paulo - SABESP, this is the formula:

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

0.13 = R$10b ÷ (R$96b - R$15b) (Based on the trailing twelve months to September 2025).

Therefore, Companhia de Saneamento Básico do Estado de São Paulo - SABESP has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 8.0% generated by the Water Utilities industry.

Check out our latest analysis for Companhia de Saneamento Básico do Estado de São Paulo - SABESP

Above you can see how the current ROCE for Companhia de Saneamento Básico do Estado de São Paulo - SABESP compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Companhia de Saneamento Básico do Estado de São Paulo - SABESP .

What Can We Tell From Companhia de Saneamento Básico do Estado de São Paulo - SABESP's ROCE Trend?

We like the trends that we're seeing from Companhia de Saneamento Básico do Estado de São Paulo - SABESP. Over the last five years, returns on capital employed have risen substantially to 13%. Basically the business is earning more per dollar of capital invested and in addition to that, 87% 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.

The Bottom Line

To sum it up, Companhia de Saneamento Básico do Estado de São Paulo - SABESP has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 251% to shareholders over the last five years, it looks like investors are recognizing these changes. 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.

Companhia de Saneamento Básico do Estado de São Paulo - SABESP does have some risks though, and we've spotted 1 warning sign for Companhia de Saneamento Básico do Estado de São Paulo - SABESP that you might be interested in.

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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.