Our Take On The Returns On Capital At Zumtobel Group (VIE:ZAG)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Zumtobel Group (VIE:ZAG) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

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 Zumtobel Group, this is the formula:

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

0.071 = €44m ÷ (€977m - €351m) (Based on the trailing twelve months to July 2020).

Thus, Zumtobel Group has an ROCE of 7.1%. Ultimately, that's a low return and it under-performs the Electrical industry average of 10%.

Check out our latest analysis for Zumtobel Group

Above you can see how the current ROCE for Zumtobel Group 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 report on analyst forecasts for the company.

How Are Returns Trending?

Things have been pretty stable at Zumtobel Group, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Zumtobel Group to be a multi-bagger going forward.

The Bottom Line On Zumtobel Group's ROCE

We can conclude that in regards to Zumtobel Group's returns on capital employed and the trends, there isn't much change to report on. And in the last five years, the stock has given away 69% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Zumtobel Group has the makings of a multi-bagger.

If you'd like to know about the risks facing Zumtobel Group, we've discovered 3 warning signs that you should be aware of.

While Zumtobel Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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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