Here's What's Concerning About Zee Entertainment Enterprises' (NSE:ZEEL) Returns On Capital

When researching a stock for investment, what can tell us that the company is in decline? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. On that note, looking into Zee Entertainment Enterprises (NSE:ZEEL), we weren't too upbeat about how things were going.

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 Zee Entertainment Enterprises:

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

0.061 = ₹6.8b ÷ (₹138b - ₹27b) (Based on the trailing twelve months to September 2023).

Thus, Zee Entertainment Enterprises has an ROCE of 6.1%. In absolute terms, that's a low return and it also under-performs the Media industry average of 11%.

Check out our latest analysis for Zee Entertainment Enterprises

Above you can see how the current ROCE for Zee Entertainment Enterprises 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 Zee Entertainment Enterprises here for free.

What Does the ROCE Trend For Zee Entertainment Enterprises Tell Us?

There is reason to be cautious about Zee Entertainment Enterprises, given the returns are trending downwards. Unfortunately the returns on capital have diminished from the 23% that they were earning five years ago. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect Zee Entertainment Enterprises to turn into a multi-bagger.

The Bottom Line On Zee Entertainment Enterprises' ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Long term shareholders who've owned the stock over the last five years have experienced a 41% depreciation in their investment, so it appears the market might not like these trends either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

On a separate note, we've found 3 warning signs for Zee Entertainment Enterprises you'll probably want to know about.

While Zee Entertainment Enterprises isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.