Returns On Capital Are Showing Encouraging Signs At EVZ (ASX:EVZ)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, EVZ (ASX:EVZ) looks quite promising in regards to its trends of return on capital.

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What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on EVZ is:

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

0.063 = AU$2.5m ÷ (AU$69m - AU$30m) (Based on the trailing twelve months to June 2025).

So, EVZ has an ROCE of 6.3%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 18%.

See our latest analysis for EVZ

Historical performance is a great place to start when researching a stock so above you can see the gauge for EVZ's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of EVZ.

What The Trend Of ROCE Can Tell Us

EVZ 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 6.3% which is a sight for sore eyes. Not only that, but the company is utilizing 69% 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.

On a side note, EVZ's current liabilities are still rather high at 43% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

Overall, EVZ 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 a remarkable 114% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if EVZ can keep these trends up, it could have a bright future ahead.

If you want to continue researching EVZ, you might be interested to know about the 2 warning signs that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.