Under The Bonnet, Zimplats Holdings' (ASX:ZIM) Returns Look Impressive

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. With that in mind, the ROCE of Zimplats Holdings (ASX:ZIM) looks great, so lets see what the trend can tell us.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Zimplats Holdings is:

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

0.25 = US$577m ÷ (US$2.5b - US$146m) (Based on the trailing twelve months to December 2022).

So, Zimplats Holdings has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 11%.

See our latest analysis for Zimplats Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Zimplats Holdings' ROCE against it's prior returns. If you're interested in investigating Zimplats Holdings' past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Zimplats Holdings' ROCE Trend?

The trends we've noticed at Zimplats Holdings are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 25%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 90%. So we're very much inspired by what we're seeing at Zimplats Holdings thanks to its ability to profitably reinvest capital.

The Bottom Line On Zimplats Holdings' ROCE

All in all, it's terrific to see that Zimplats Holdings is reaping the rewards from prior investments and is growing its capital base. And a remarkable 650% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you want to continue researching Zimplats Holdings, you might be interested to know about the 1 warning sign that our analysis has discovered.

Zimplats Holdings is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.