Investors Will Want Impresa - Sociedade Gestora de Participações Sociais' (ELI:IPR) Growth In ROCE To Persist

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Speaking of which, we noticed some great changes in Impresa - Sociedade Gestora de Participações Sociais' (ELI:IPR) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Impresa - Sociedade Gestora de Participações Sociais:

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

0.072 = €19m ÷ (€400m - €135m) (Based on the trailing twelve months to June 2022).

So, Impresa - Sociedade Gestora de Participações Sociais has an ROCE of 7.2%. In absolute terms, that's a low return and it also 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'd like to look at how Impresa - Sociedade Gestora de Participações Sociais has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Impresa - Sociedade Gestora de Participações Sociais' ROCE Trend?

Impresa - Sociedade Gestora de Participações Sociais is showing promise given that its ROCE is trending up and to the right. 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 125% over the last five years. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line

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 44% 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 is a bit unpleasant!) that you should know about.

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.