ZF Commercial Vehicle Control Systems India (NSE:ZFCVINDIA) Has More To Do To Multiply In Value Going Forward

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. That's why when we briefly looked at ZF Commercial Vehicle Control Systems India's (NSE:ZFCVINDIA) ROCE trend, we were pretty happy with what we saw.

Understanding 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. To calculate this metric for ZF Commercial Vehicle Control Systems India, this is the formula:

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

0.16 = ₹4.5b ÷ (₹34b - ₹5.1b) (Based on the trailing twelve months to June 2024).

Therefore, ZF Commercial Vehicle Control Systems India has an ROCE of 16%. That's a relatively normal return on capital, and it's around the 15% generated by the Auto Components industry.

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 to see what analysts are forecasting going forward, you should check out our free analyst report for ZF Commercial Vehicle Control Systems India .

The Trend Of ROCE

While the current returns on capital are decent, they haven't changed much. The company has employed 58% more capital in the last five years, and the returns on that capital have remained stable at 16%. 16% is a pretty standard return, and it provides some comfort knowing that ZF Commercial Vehicle Control Systems India has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line On ZF Commercial Vehicle Control Systems India's ROCE

In the end, ZF Commercial Vehicle Control Systems India has proven its ability to adequately reinvest capital at good rates of return. And the stock has done incredibly well with a 160% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

ZF Commercial Vehicle Control Systems India could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for ZFCVINDIA on our platform quite valuable.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.