Returns On Capital Are Showing Encouraging Signs At ZF Commercial Vehicle Control Systems India (NSE:ZFCVINDIA)

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. So when we looked at ZF Commercial Vehicle Control Systems India (NSE:ZFCVINDIA) and its trend of ROCE, we really liked what we saw.

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Understanding 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. The formula for this calculation on ZF Commercial Vehicle Control Systems India is:

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

0.16 = ₹4.8b ÷ (₹36b - ₹5.5b) (Based on the trailing twelve months to December 2024).

Thus, ZF Commercial Vehicle Control Systems India has an ROCE of 16%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Auto Components industry average of 15%.

View our latest analysis for ZF Commercial Vehicle Control Systems India

Above you can see how the current ROCE for ZF Commercial Vehicle Control Systems India compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering ZF Commercial Vehicle Control Systems India for free.

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from ZF Commercial Vehicle Control Systems India. The data shows that returns on capital have increased substantially over the last five years to 16%. Basically the business is earning more per dollar of capital invested and in addition to that, 61% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

To sum it up, ZF Commercial Vehicle Control Systems India has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 107% 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.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for ZFCVINDIA on our platform that is definitely worth checking out.

While ZF Commercial Vehicle Control Systems India 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.