Transmissora Aliança de Energia Elétrica (BVMF:TAEE11) Is Looking To Continue Growing Its Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Transmissora Aliança de Energia Elétrica (BVMF:TAEE11) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested 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)

0.17 = R$2.7b ÷ (R$17b - R$1.4b) (Based on the trailing twelve months to March 2022).

So, Transmissora Aliança de Energia Elétrica has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 14% generated by the Electric Utilities industry.

Check out 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

Investors would be pleased with what's happening at Transmissora Aliança de Energia Elétrica. Over the last five years, returns on capital employed have risen substantially to 17%. 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 112%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Transmissora Aliança de Energia Elétrica's ROCE

In summary, it's great to see that Transmissora Aliança de Energia Elétrica 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. Since the stock has returned a staggering 179% 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.

If you'd like to know about the risks facing Transmissora Aliança de Energia Elétrica, we've discovered 2 warning signs that 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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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.