Investors Will Want Zee Learn's (NSE:ZEELEARN) Growth In ROCE To Persist

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 on that note, Zee Learn (NSE:ZEELEARN) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Zee Learn:

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

0.16 = ₹943m ÷ (₹11b - ₹5.1b) (Based on the trailing twelve months to March 2024).

So, Zee Learn has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Consumer Services industry average of 12% it's much better.

Check out our latest analysis for Zee Learn

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'd like to look at how Zee Learn has performed in the past in other metrics, you can view this free graph of Zee Learn's past earnings, revenue and cash flow.

So How Is Zee Learn's ROCE Trending?

We're pretty happy with how the ROCE has been trending at Zee Learn. The figures show that over the last five years, returns on capital have grown by 44%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, Zee Learn appears to been achieving more with less, since the business is using 51% less capital to run its operation. Zee Learn may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 47% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

The Bottom Line

In a nutshell, we're pleased to see that Zee Learn has been able to generate higher returns from less capital. However the stock is down a substantial 76% in the last five years so there could be other areas of the business hurting its prospects. Still, it's worth doing some further research to see if the trends will continue into the future.

One final note, you should learn about the 3 warning signs we've spotted with Zee Learn (including 2 which can't be ignored) .

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.