Has Transmissora Aliança de Energia Elétrica (BVMF:TAEE11) Got What It Takes To Become A Multi-Bagger?

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So, when we ran our eye over Transmissora Aliança de Energia Elétrica's (BVMF:TAEE11) trend of ROCE, we liked what we saw.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Transmissora Aliança de Energia Elétrica is:

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

0.13 = R$1.7b ÷ (R$14b - R$926m) (Based on the trailing twelve months to September 2020).

Therefore, Transmissora Aliança de Energia Elétrica has an ROCE of 13%. That's a relatively normal return on capital, and it's around the 11% generated by the Electric Utilities industry.

See our latest analysis for Transmissora Aliança de Energia Elétrica

In the above chart we have measured Transmissora Aliança de Energia Elétrica's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 13% and the business has deployed 65% more capital into its operations. 13% is a pretty standard return, and it provides some comfort knowing that Transmissora Aliança de Energia Elétrica has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

Our Take On Transmissora Aliança de Energia Elétrica's ROCE

The main thing to remember is that Transmissora Aliança de Energia Elétrica has proven its ability to continually reinvest at respectable rates of return. On top of that, the stock has rewarded shareholders with a remarkable 214% return to those who've held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

On a final note, we've found 3 warning signs for Transmissora Aliança de Energia Elétrica that we think you should be aware of.

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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