There has been no shortage of growth recently for Indústrias Romi’s (BVMF:ROMI3) capital returns

There are a few key trends to look out for if we want to identify the next multi-bagger. Among other things, we will want to see two things; first, growth to return to on capital employed (ROCE) and on the other hand, an expansion of the 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 blending machine. Speaking of which, we’ve noticed big changes in Industries Romi’s (BVMF:ROMI3) returns on capital, so let’s look.

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. The formula for this calculation on Indústrias Romi is:

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

0.15 = R$209 million ÷ (R$2.0 billion – R$576 million) (Based on the last twelve months to December 2021).

So, Indústrias Romi has a ROCE of 15%. This is a relatively normal return on capital, and it is around the 16% generated by the machinery industry.

See our latest analysis for Indústrias Romi

BOVESPA: ROMI3 Return on Capital Employed March 21, 2022

Although the past is not indicative of the future, it can be useful to know the historical performance of a company, which is why we have this graph above. If you want to dive into Indústrias Romi’s profit, revenue and cash flow history, check out these free graphics here.

What does the ROCE trend tell us for Indústrias Romi?

We are delighted to see that Indústrias Romi is reaping the rewards of its investments and is now generating pre-tax profits. The shareholders would no doubt be delighted because the company was loss-making five years ago but now generates 15% of its capital. On top of that, Indústrias Romi employs 74% more capital than before, which is expected of a company trying to become profitable. This may indicate that there are many opportunities to invest capital internally and at ever higher rates, two common characteristics of a multi-bagger.

In conclusion…

In summary, it is great to see that Indústrias Romi has managed to become profitable and continues to reinvest in its business. Given that the stock has returned a staggering 546% to shareholders over the past five years, it seems investors recognize these changes. Therefore, we think it would be worth checking whether these trends will continue.

Finally we found 4 warning signs for Indústrias Romi (2 doesn’t sit too well with us) you should know.

Although Indústrias Romi does not get the highest yield, check this free list of companies that achieve 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 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.

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