Impresa - Sociedade Gestora de Participações Sociais (ELI:IPR) Is Experiencing Growth In 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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Impresa - Sociedade Gestora de Participações Sociais (ELI:IPR) so let's look a bit deeper.

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

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. The formula for this calculation on Impresa - Sociedade Gestora de Participações Sociais is:

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

0.073 = €19m ÷ (€396m - €136m) (Based on the trailing twelve months to June 2022).

Thus, Impresa - Sociedade Gestora de Participações Sociais has an ROCE of 7.3%. Ultimately, that's a low return and it under-performs the Media industry average of 12%.

View our latest analysis for Impresa - Sociedade Gestora de Participações Sociais

Historical performance is a great place to start when researching a stock so above you can see the gauge for Impresa - Sociedade Gestora de Participações Sociais' ROCE against it's prior returns. If you're interested in investigating Impresa - Sociedade Gestora de Participações Sociais' past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Impresa - Sociedade Gestora de Participações Sociais' ROCE Trending?

Impresa - Sociedade Gestora de Participações Sociais has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 122% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

What We Can Learn From Impresa - Sociedade Gestora de Participações Sociais' ROCE

To sum it up, Impresa - Sociedade Gestora de Participações Sociais is collecting higher returns from the same amount of capital, and that's impressive. Given the stock has declined 31% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Impresa - Sociedade Gestora de Participações Sociais (of which 1 shouldn't be ignored!) that you should know about.

While Impresa - Sociedade Gestora de Participações Sociais isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.