The Returns At Transmissora Aliança de Energia Elétrica (BVMF:TAEE11) Aren't Growing

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. That's why when we briefly looked at Transmissora Aliança de Energia Elétrica's (BVMF:TAEE11) ROCE trend, we were pretty happy with what we saw.

What Is Return On Capital Employed (ROCE)?

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. 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)

0.10 = R$1.7b ÷ (R$18b - R$1.1b) (Based on the trailing twelve months to March 2023).

Therefore, Transmissora Aliança de Energia Elétrica has an ROCE of 10%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Electric Utilities industry average of 12%.

See our latest analysis for Transmissora Aliança de Energia Elétrica

Above you can see how the current ROCE for Transmissora Aliança de Energia Elétrica 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 report on analyst forecasts for the company.

The Trend Of ROCE

While the returns on capital are good, they haven't moved much. The company has consistently earned 10% for the last five years, and the capital employed within the business has risen 127% in that time. Since 10% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. 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 Key Takeaway

In the end, Transmissora Aliança de Energia Elétrica has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 227% return they've received over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

On a separate note, we've found 2 warning signs for Transmissora Aliança de Energia Elétrica you'll probably want to know about.

While Transmissora Aliança de Energia Elétrica 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.