Under The Bonnet, Zoomd Technologies' (CVE:ZOMD) Returns Look Impressive

If you're looking for a multi-bagger, there's a few things to 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Zoomd Technologies (CVE:ZOMD) looks great, so lets see what the trend can tell us.

What Is 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 Zoomd Technologies, this is the formula:

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

0.27 = US$4.6m ÷ (US$26m - US$9.1m) (Based on the trailing twelve months to March 2022).

Thus, Zoomd Technologies has an ROCE of 27%. That's a fantastic return and not only that, it outpaces the average of 6.6% earned by companies in a similar industry.

See our latest analysis for Zoomd Technologies

Historical performance is a great place to start when researching a stock so above you can see the gauge for Zoomd Technologies' ROCE against it's prior returns. If you'd like to look at how Zoomd Technologies has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Zoomd Technologies has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses four years ago, but now it's earning 27% which is a sight for sore eyes. Not only that, but the company is utilizing 24% 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 On Zoomd Technologies' ROCE

Long story short, we're delighted to see that Zoomd Technologies' reinvestment activities have paid off and the company is now profitable. Since the stock has returned a solid 10.0% to shareholders over the last year, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Zoomd Technologies can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 1 warning sign with Zoomd Technologies and understanding it should be part of your investment process.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.