Returns are gaining momentum in Cambuci (BVMF: CAMB3)


Did you know that certain financial measures can provide clues about a potential multi-bagger? Ideally, a business will display two trends; first growth to recover on capital employed (ROCE) and on the other hand, an increase amount capital employed. Put simply, these types of businesses are dialing machines, which means they continually reinvest their profits at ever higher rates of return. With that in mind, we’ve noticed some promising trends at Cambuci (BVMF: CAMB3) so let’s look a little deeper.

Understanding Return on Capital Employed (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 Cambuci, here is the formula:

Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)

0.19 = 33 million reais ÷ (268 million reais – 92 million reais) (Based on the last twelve months up to June 2021).

Thereby, Cambuci has a ROCE of 19%. In absolute terms, it’s a decent return, but compared to the luxury industry average of 13%, it’s much better.

See our latest review for Cambuci

BOVESPA: CAMB3 Return on Employee Capital September 28, 2021

Historical performance is a great place to start when researching a stock, so above you can see Cambuci’s ROCE gauge against its past returns. If you want to delve into Cambuci’s earnings, income and cash flow history, check out these free graphics here.

What the ROCE trend can tell us

We are delighted to see that Cambuci is reaping the rewards of its investments and is now generating pre-tax profits. About five years ago the company was making losses, but things have changed as it is now earning 19% on its equity. On top of that, Cambuci employs 3.114% more capital than before, which is expected of a company trying to achieve profitability. We like this trend because it tells us that the company has profitable reinvestment opportunities, and if it keeps moving forward it can lead to multi-bagger performance.

One more thing to note, Cambuci reduced current liabilities to 34% of total assets during this period, effectively reducing the amount of financing from suppliers or short-term creditors. Shareholders would therefore be delighted if the growth in returns was primarily driven by underlying business performance.

The bottom line

Overall, Cambuci is getting a big tick from us thanks in large part to the fact that he is now profitable and is reinvesting in his business. And investors seem to expect more of that in the future, as the stock has rewarded shareholders with a 17% return over the past year. That being said, we still believe that promising fundamentals mean the company deserves additional due diligence.

Cambuci has risks, we noticed 4 warning signs (and 2 that make us uncomfortable) we think you should be aware of.

While Cambuci does not currently generate the highest returns, we have compiled a list of companies that currently generate over 25% return on equity. Check it out free list here.

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 documents. Simply Wall St has no position in the mentioned stocks.

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