Cogna Educação (BVMF:COGN3) Might Have The Makings Of A Multi-Bagger

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Cogna Educação (BVMF:COGN3) so let's look a bit deeper.

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What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Cogna Educação, this is the formula:

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

0.075 = R$1.6b ÷ (R$24b - R$2.4b) (Based on the trailing twelve months to September 2025).

Thus, Cogna Educação has an ROCE of 7.5%. Ultimately, that's a low return and it under-performs the Consumer Services industry average of 11%.

View our latest analysis for Cogna Educação

Above you can see how the current ROCE for Cogna Educação compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Cogna Educação .

How Are Returns Trending?

It's great to see that Cogna Educação has started to generate some pre-tax earnings from prior investments. The company was generating losses five years ago, but now it's turned around, earning 7.5% which is no doubt a relief for some early shareholders. In regards to capital employed, Cogna Educação is using 33% less capital than it was five years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. The reduction could indicate that the company is selling some assets, and considering returns are up, they appear to be selling the right ones.

The Bottom Line On Cogna Educação's ROCE

From what we've seen above, Cogna Educação has managed to increase it's returns on capital all the while reducing it's capital base. Given the stock has declined 16% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One more thing: We've identified 3 warning signs with Cogna Educação (at least 1 which doesn't sit too well with us) , and understanding them would certainly be useful.

While Cogna Educação isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.