We Like These Underlying Return On Capital Trends At Transmissora Aliança de Energia Elétrica (BVMF:TAEE11)

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Transmissora Aliança de Energia Elétrica (BVMF:TAEE11) so let's look a bit deeper.

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. Analysts use this formula to calculate it for Transmissora Aliança de Energia Elétrica:

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

0.20 = R$2.9b ÷ (R$16b - R$1.2b) (Based on the trailing twelve months to September 2021).

So, Transmissora Aliança de Energia Elétrica has an ROCE of 20%. In absolute terms, that's a satisfactory return, but compared to the Electric Utilities industry average of 13% it's much better.

View 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'd like to see what analysts are forecasting going forward, you should check out our free report for Transmissora Aliança de Energia Elétrica.

How Are Returns Trending?

Investors would be pleased with what's happening at Transmissora Aliança de Energia Elétrica. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 20%. The amount of capital employed has increased too, by 81%. So we're very much inspired by what we're seeing at Transmissora Aliança de Energia Elétrica thanks to its ability to profitably reinvest capital.

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

To sum it up, Transmissora Aliança de Energia Elétrica has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 202% 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.

One final note, you should learn about the 3 warning signs we've spotted with Transmissora Aliança de Energia Elétrica (including 2 which can't be ignored) .

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.