Alliança Saúde e Participações (BVMF:AALR3) Shareholders Will Want The ROCE Trajectory To Continue
There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Speaking of which, we noticed some great changes in Alliança Saúde e Participações' (BVMF:AALR3) returns on capital, so let's have a look.
Understanding Return On Capital Employed (ROCE)
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Alliança Saúde e Participações is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.053 = R$117m ÷ (R$3.0b - R$807m) (Based on the trailing twelve months to September 2025).
Therefore, Alliança Saúde e Participações has an ROCE of 5.3%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 12%.
View our latest analysis for Alliança Saúde e Participações
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 Alliança Saúde e Participações has performed in the past in other metrics, you can view this free graph of Alliança Saúde e Participações' past earnings, revenue and cash flow.
What Can We Tell From Alliança Saúde e Participações' ROCE Trend?
We're delighted to see that Alliança Saúde e Participações is reaping rewards from its investments and has now broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 5.3% on its capital. While returns have increased, the amount of capital employed by Alliança Saúde e Participações has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.
Our Take On Alliança Saúde e Participações' ROCE
To bring it all together, Alliança Saúde e Participações has done well to increase the returns it's generating from its capital employed. Given the stock has declined 62% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.
One more thing: We've identified 3 warning signs with Alliança Saúde e Participações (at least 1 which is a bit unpleasant) , and understanding them would certainly be useful.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.