Here’s What’s Happening With Returns At Zuari Global (NSE:ZUARIGLOB)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Zuari Global (NSE:ZUARIGLOB) looks quite promising in regards to its trends of return on capital.

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

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. Analysts use this formula to calculate it for Zuari Global:

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

0.0095 = ₹245m ÷ (₹39b - ₹14b) (Based on the trailing twelve months to June 2020).

Therefore, Zuari Global has an ROCE of 0.9%. Ultimately, that's a low return and it under-performs the Industrials industry average of 9.6%.

View our latest analysis for Zuari Global

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 Zuari Global has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Zuari Global's ROCE Trending?

Zuari Global has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 0.9% which is a sight for sore eyes. Not only that, but the company is utilizing 138% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Key Takeaway

Overall, Zuari Global gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And since the stock has fallen 32% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

One more thing: We've identified 3 warning signs with Zuari Global (at least 1 which is concerning) , and understanding these would certainly be useful.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. 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.
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