Returns On Capital Are Showing Encouraging Signs At ZoomerMedia (CVE:ZUM)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at ZoomerMedia (CVE:ZUM) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

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)

0.025 = CA$2.3m ÷ (CA$99m - CA$9.5m) (Based on the trailing twelve months to May 2023).

So, ZoomerMedia has an ROCE of 2.5%. Ultimately, that's a low return and it under-performs the Media industry average of 8.9%.

Check out our latest analysis for ZoomerMedia

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

So How Is ZoomerMedia's ROCE Trending?

We're delighted to see that ZoomerMedia is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 2.5% on its capital. Not only that, but the company is utilizing 115% 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 Bottom Line

Long story short, we're delighted to see that ZoomerMedia's reinvestment activities have paid off and the company is now profitable. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing: We've identified 3 warning signs with ZoomerMedia (at least 2 which shouldn't be ignored) , and understanding these would certainly be useful.

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.