Transmissora Aliança de Energia Elétrica (BVMF:TAEE11) Is Experiencing Growth In Returns On Capital

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Transmissora Aliança de Energia Elétrica's (BVMF:TAEE11) returns on capital, so let's have a look.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the 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)

0.13 = R$2.2b ÷ (R$18b - R$975m) (Based on the trailing twelve months to September 2022).

So, Transmissora Aliança de Energia Elétrica has an ROCE of 13%. That's a pretty standard return and it's in line with the industry average of 13%.

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.

What Can We Tell From Transmissora Aliança de Energia Elétrica's ROCE Trend?

We like the trends that we're seeing from Transmissora Aliança de Energia Elétrica. The data shows that returns on capital have increased substantially over the last five years to 13%. 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 135%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line

All in all, it's terrific to see that Transmissora Aliança de Energia Elétrica is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 194% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Transmissora Aliança de Energia Elétrica can keep these trends up, it could have a bright future ahead.

On a final note, we've found 2 warning signs for Transmissora Aliança de Energia Elétrica that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.