Why the 20% return on capital at Alupar Investimento (BVMF: ALUP11) should hold your attention
Did you know that certain financial measures can provide clues about a potential multi-bagger? A common approach is to try to find a business with Return on capital employed (ROCE) which increases, in connection with growth amount capital employed. Basically, this means that a business has profitable initiatives that it can continue to reinvest in, which is a hallmark of a dialing machine. With this in mind, the ROCE of Alupar Investimento (BVMF: ALUP11) looks great, so let’s see what the trend can tell us.
What is Return on Employee Capital (ROCE)?
Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. To calculate this metric for Alupar Investimento, here is the formula:
Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.20 = 4.4 billion reais ÷ (24 billion reais – 2.2 billion reais) (Based on the last twelve months up to June 2021).
Therefore, Alupar Investimento has a ROCE of 20%. In absolute terms, this is excellent performance and is even better than the electric utility industry average of 13%.
See our latest analysis for Alupar Investimento
Above you can see how Alupar Investimento’s current ROCE compares to its previous ROCEs, but there is little you can say about the past. If you wish, you can consult here the analysts’ forecasts of Alupar Investimento for free.
What does Alupar Investimento’s ROCE trend tell us?
We love the trends we see from Alupar Investimento. Figures show that over the past five years, returns on capital employed have increased dramatically to 20%. Basically the business is making more per dollar of capital invested and on top of that 168% more capital is also being used now. This may indicate that there are many opportunities to invest capital in-house and at ever higher rates, a common combination among multi-baggers.
To sum up, Alupar Investimento has proven that it can reinvest in the business and generate higher returns on that capital employed, which is great. Given that the stock has returned a solid 61% to shareholders over the past five years, it’s fair to say that investors are starting to recognize these changes. So, given that the stock has proven to have some promising trends, it is worth doing more research on the company to see if these trends are likely to continue.
Since virtually every business faces risks, it’s worth knowing about them, and we’ve spotted 3 warning signs for Alupar Investimento (2 of which are a bit disturbing!) that you should know about.
High yields are a key ingredient to strong performance, so check out our free list of stocks generating high returns on equity with strong balance sheets.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
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