What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at the ROCE trend of Zoono Group (ASX:ZNO) we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Zoono Group:

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

0.25 = NZ$7.2m ÷ (NZ$32m - NZ$3.3m) (Based on the trailing twelve months to June 2021).

Therefore, Zoono Group has an ROCE of 25%. That's a fantastic return and not only that, it outpaces the average of 5.4% earned by companies in a similar industry.

See our latest analysis for Zoono Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Zoono Group's ROCE against it's prior returns. If you're interested in investigating Zoono Group's past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We're delighted to see that Zoono Group is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses four years ago, but now it's earning 25% which is a sight for sore eyes. Not only that, but the company is utilizing 358% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 11%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

What We Can Learn From Zoono Group's ROCE

In summary, it's great to see that Zoono Group has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 523% to shareholders over the last three years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Zoono Group can keep these trends up, it could have a bright future ahead.