Slowing Rates Of Return At Transmissora Aliança de Energia Elétrica (BVMF:TAEE11) Leave Little Room For Excitement

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over Transmissora Aliança de Energia Elétrica's (BVMF:TAEE11) trend of ROCE, we liked what we saw.

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 Transmissora Aliança de Energia Elétrica, this is the formula:

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

0.18 = R$2.6b ÷ (R$15b - R$895m) (Based on the trailing twelve months to March 2021).

Therefore, Transmissora Aliança de Energia Elétrica has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Electric Utilities industry average of 11% it's much better.

View 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.

What The Trend Of ROCE Can Tell Us

While the returns on capital are good, they haven't moved much. The company has employed 67% more capital in the last five years, and the returns on that capital have remained stable at 18%. 18% is a pretty standard return, and it provides some comfort knowing that Transmissora Aliança de Energia Elétrica has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line On Transmissora Aliança de Energia Elétrica's ROCE

In the end, Transmissora Aliança de Energia Elétrica has proven its ability to adequately reinvest capital at good rates of return. On top of that, the stock has rewarded shareholders with a remarkable 258% 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.

If you want to know some of the risks facing Transmissora Aliança de Energia Elétrica we've found 3 warning signs (2 are potentially serious!) that you should be aware of before investing here.

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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