Will Zuari Global's (NSE:ZUARIGLOB) Growth In ROCE Persist?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. So on that note, Zuari Global (NSE:ZUARIGLOB) looks quite promising in regards to its trends of return on capital.

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. Analysts use this formula to calculate it for Zuari Global:

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

0.042 = ₹1.1b ÷ (₹39b - ₹14b) (Based on the trailing twelve months to March 2020).

So, Zuari Global has an ROCE of 4.2%. In absolute terms, that's a low return and it also under-performs the Industrials industry average of 10%.

Check out our latest analysis for Zuari Global

Historical performance is a great place to start when researching a stock so above you can see the gauge for Zuari Global's ROCE against it's prior returns. If you're interested in investigating Zuari Global's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Zuari Global Tell Us?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 4.2%. The amount of capital employed has increased too, by 138%. So we're very much inspired by what we're seeing at Zuari Global thanks to its ability to profitably reinvest capital.

The Bottom Line On Zuari Global's ROCE

All in all, it's terrific to see that Zuari Global is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 44% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a final note, we found 4 warning signs for Zuari Global (1 is significant) you should be aware of.

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.

If you decide to trade Zuari Global, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.