Returns Are Gaining Momentum At Inapa - Investimentos Participações e Gestão (ELI:INA)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. So when we looked at Inapa - Investimentos Participações e Gestão (ELI:INA) and its trend of ROCE, we really liked what we saw.

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. Analysts use this formula to calculate it for Inapa - Investimentos Participações e Gestão:

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

0.12 = €48m ÷ (€707m - €292m) (Based on the trailing twelve months to June 2022).

Therefore, Inapa - Investimentos Participações e Gestão has an ROCE of 12%. In absolute terms, that's a pretty standard return but compared to the Trade Distributors industry average it falls behind.

Check out our latest analysis for Inapa - Investimentos Participações e Gestão

Historical performance is a great place to start when researching a stock so above you can see the gauge for Inapa - Investimentos Participações e Gestão's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Inapa - Investimentos Participações e Gestão, check out these free graphs here.

What Does the ROCE Trend For Inapa - Investimentos Participações e Gestão Tell Us?

Inapa - Investimentos Participações e Gestão is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 337% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 41% of the business, which is more than it was five years ago. And with current liabilities at those levels, that's pretty high.

The Bottom Line On Inapa - Investimentos Participações e Gestão's ROCE

As discussed above, Inapa - Investimentos Participações e Gestão appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And since the stock has fallen 68% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you'd like to know more about Inapa - Investimentos Participações e Gestão, we've spotted 3 warning signs, and 1 of them doesn't sit too well with us.

While Inapa - Investimentos Participações e Gestão 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.