The Trend Of High Returns At Companhia de Saneamento Básico do Estado de São Paulo - SABESP (BVMF:SBSP3) Has Us Very Interested

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Companhia de Saneamento Básico do Estado de São Paulo - SABESP's (BVMF:SBSP3) returns on capital, so let's have a look.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)

0.23 = R$17b ÷ (R$86b - R$12b) (Based on the trailing twelve months to March 2025).

So, Companhia de Saneamento Básico do Estado de São Paulo - SABESP has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Water Utilities industry average of 7.8%.

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

In the above chart we have measured Companhia de Saneamento Básico do Estado de São Paulo - SABESP's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out 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?

Investors would be pleased with what's happening at Companhia de Saneamento Básico do Estado de São Paulo - SABESP. The data shows that returns on capital have increased substantially over the last five years to 23%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 83%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Companhia de Saneamento Básico do Estado de São Paulo - SABESP's ROCE

In summary, it's great to see that Companhia de Saneamento Básico do Estado de São Paulo - SABESP can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 128% total return over the last five years tells us that investors are expecting more good things to come in the future. 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.

On a final note, we found 3 warning signs for Companhia de Saneamento Básico do Estado de São Paulo - SABESP (1 is a bit concerning) you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.