SLC Agrícola (BVMF:SLCE3) seeks to continue increasing its returns on capital
Finding a business that has the potential to grow significantly isn’t easy, but it is possible if we look at a few key financial metrics. In a perfect world, we would like to see a company invest more capital in their business and ideally the returns from that capital also increase. Basically, this means that a business has profitable initiatives that it can continue to reinvest in, which is a hallmark of a blending machine. Speaking of which, we’ve noticed big changes in SLC Agricola (BVMF:SLCE3) returns on capital, so let’s watch.
Return on capital employed (ROCE): what is it?
If you’ve never worked with ROCE before, it measures the “yield” (pre-tax profit) a company generates from the capital used in its business. Analysts use this formula to calculate it for SLC Agrícola:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.20 = R$1.8 billion ÷ (R$13 billion – R$4.0 billion) (Based on the last twelve months to September 2021).
So, SLC Agrícola has a ROCE of 20%. In itself, this is a standard yield, but it is much better than the 16% generated by the food industry.
See our latest review for SLC Agrícola
In the chart above, we measured SLC Agrícola’s past ROCE against its past performance, but the future is arguably more important. If you want to see what analysts are predicting for the future, you should check out our free report for SLC Agrícola.
What is the return trend?
The fact that SLC Agrícola is now generating pre-tax profits on its past investments is very encouraging. The shareholders would no doubt rejoice because the company was loss-making five years ago but now generates 20% of its capital. Not only that, but the company is using 147% more capital than before, but that’s to be expected of a company trying to become profitable. We like this trend because it tells us that the company has profitable reinvestment opportunities, and if it continues, it can lead to multi-bagger performance.
The Key Takeaway
Overall, SLC Agrícola gets a good rating from us, largely due to the fact that it is now profitable and reinvesting in its business. And a remarkable total return of 669% over the past five years tells us that investors expect more good things to come. So given that the stock has proven to have some promising trends, it’s worth researching the company further to see if those trends are likely to persist.
Like most businesses, SLC Agrícola involves certain risks, and we have seen 3 warning signs of which you should be aware.
If you want to look for strong companies with excellent earnings, check out this free list of companies with strong balance sheets and impressive returns on equity.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.