There's Been No Shortage Of Growth Recently For Impresa - Sociedade Gestora de Participações Sociais' (ELI:IPR) Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. 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.

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. 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)

0.094 = €26m ÷ (€375m - €100m) (Based on the trailing twelve months to December 2020).

So, Impresa - Sociedade Gestora de Participações Sociais has an ROCE of 9.4%. Even though it's in line with the industry average of 8.6%, it's still a low return by itself.

See 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 The Trend Of ROCE Can Tell Us

Impresa - Sociedade Gestora de Participações Sociais is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 57% whilst employing roughly the same amount of capital. 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. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

Our Take On Impresa - Sociedade Gestora de Participações Sociais' ROCE

In summary, we're delighted to see that Impresa - Sociedade Gestora de Participações Sociais has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has fallen 56% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you want to know some of the risks facing Impresa - Sociedade Gestora de Participações Sociais we've found 2 warning signs (1 is a bit unpleasant!) that you should be aware of before investing here.

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.

If you decide to trade Impresa - Sociedade Gestora de Participações Sociais, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.