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If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Having said that, from a first glance at Flughafen Zürich (VTX:FHZN) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
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. To calculate this metric for Flughafen Zürich, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.087 = CHF390m ÷ (CHF5.1b - CHF606m) (Based on the trailing twelve months to December 2023).
Therefore, Flughafen Zürich has an ROCE of 8.7%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.5%.
View our latest analysis for Flughafen Zürich
In the above chart we have measured Flughafen Zürich's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Flughafen Zürich .
What Does the ROCE Trend For Flughafen Zürich Tell Us?
Over the past five years, Flughafen Zürich's ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Flughafen Zürich to be a multi-bagger going forward. This probably explains why Flughafen Zürich is paying out 55% of its income to shareholders in the form of dividends. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.
The Bottom Line
In a nutshell, Flughafen Zürich has been trudging along with the same returns from the same amount of capital over the last five years. And with the stock having returned a mere 17% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.