Returns Are Gaining Momentum At ZoomerMedia (CVE:ZUM)

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'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at ZoomerMedia (CVE:ZUM) so let's look a bit deeper.

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 ZoomerMedia is:

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

0.022 = CA$2.0m ÷ (CA$104m - CA$13m) (Based on the trailing twelve months to August 2023).

Therefore, ZoomerMedia has an ROCE of 2.2%. Ultimately, that's a low return and it under-performs the Media industry average of 8.3%.

View our latest analysis for ZoomerMedia

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're interested in investigating ZoomerMedia's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From ZoomerMedia's ROCE Trend?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 2.2%. 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 125%. So we're very much inspired by what we're seeing at ZoomerMedia thanks to its ability to profitably reinvest capital.

Our Take On ZoomerMedia's ROCE

To sum it up, ZoomerMedia has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a solid 94% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we found 5 warning signs for ZoomerMedia (2 are significant) you should be aware of.

While ZoomerMedia 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. 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.