Slowing Rates Of Return At Zwahlen & Mayr (VTX:ZWM) Leave Little Room For Excitement

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Zwahlen & Mayr (VTX:ZWM), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Zwahlen & Mayr, this is the formula:

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

0.051 = CHF2.3m ÷ (CHF62m - CHF17m) (Based on the trailing twelve months to June 2022).

Thus, Zwahlen & Mayr has an ROCE of 5.1%. Ultimately, that's a low return and it under-performs the Construction industry average of 9.8%.

View our latest analysis for Zwahlen & Mayr

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 Zwahlen & Mayr's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Zwahlen & Mayr's ROCE Trending?

There hasn't been much to report for Zwahlen & Mayr's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Zwahlen & Mayr doesn't end up being a multi-bagger in a few years time.

What We Can Learn From Zwahlen & Mayr's ROCE

We can conclude that in regards to Zwahlen & Mayr's returns on capital employed and the trends, there isn't much change to report on. And investors appear hesitant that the trends will pick up because the stock has fallen 34% in the last five years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

If you want to know some of the risks facing Zwahlen & Mayr we've found 4 warning signs (2 can't be ignored!) that you should be aware of before investing here.

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.