Rio Paranapanema Energia (BVMF:GEPA3) Is Achieving High Returns On Its Capital

Simply Wall St · 07/02 09:16

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. And in light of that, the trends we're seeing at Rio Paranapanema Energia's (BVMF:GEPA3) look very promising so lets take a look.

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Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Rio Paranapanema Energia:

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

0.24 = R$591m ÷ (R$3.5b - R$1.0b) (Based on the trailing twelve months to March 2025).

Thus, Rio Paranapanema Energia has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Electric Utilities industry average of 12%.

Check out our latest analysis for Rio Paranapanema Energia

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BOVESPA:GEPA3 Return on Capital Employed July 2nd 2025

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Rio Paranapanema Energia has performed in the past in other metrics, you can view this free graph of Rio Paranapanema Energia's past earnings, revenue and cash flow.

What Can We Tell From Rio Paranapanema Energia's ROCE Trend?

Rio Paranapanema Energia has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 30% over the last five years. 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.

What We Can Learn From Rio Paranapanema Energia's ROCE

As discussed above, Rio Paranapanema Energia appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with a respectable 59% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

Rio Paranapanema Energia does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

Rio Paranapanema Energia is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.