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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Speaking of which, we noticed some great changes in ZEAL Network's (ETR:TIMA) returns on capital, so let's have a look.
Return On Capital Employed (ROCE): What Is It?
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. To calculate this metric for ZEAL Network, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = €36m ÷ (€402m - €67m) (Based on the trailing twelve months to September 2024).
Therefore, ZEAL Network has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 4.2% generated by the Hospitality industry.
Check out our latest analysis for ZEAL Network
Above you can see how the current ROCE for ZEAL Network compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for ZEAL Network .
What Does the ROCE Trend For ZEAL Network Tell Us?
We're pretty happy with how the ROCE has been trending at ZEAL Network. The data shows that returns on capital have increased by 40% over the trailing five years. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, ZEAL Network appears to been achieving more with less, since the business is using 30% less capital to run its operation. ZEAL Network may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.
The Key Takeaway
In summary, it's great to see that ZEAL Network has been able to turn things around and earn higher returns on lower amounts of capital. And a remarkable 142% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.
One more thing: We've identified 2 warning signs with ZEAL Network (at least 1 which is significant) , and understanding these would certainly be useful.