Returns On Capital Signal Tricky Times Ahead For Zee Entertainment Enterprises (NSE:ZEEL)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. Although, when we looked at Zee Entertainment Enterprises (NSE:ZEEL), it didn't seem to tick all of these boxes.

What Is 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. The formula for this calculation on Zee Entertainment Enterprises is:

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

0.095 = ₹11b ÷ (₹137b - ₹24b) (Based on the trailing twelve months to December 2022).

So, Zee Entertainment Enterprises has an ROCE of 9.5%. Even though it's in line with the industry average of 9.5%, it's still a low return by itself.

Check out our latest analysis for Zee Entertainment Enterprises

In the above chart we have measured Zee Entertainment Enterprises' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

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

When we looked at the ROCE trend at Zee Entertainment Enterprises, we didn't gain much confidence. To be more specific, ROCE has fallen from 22% over the last five years. However it looks like Zee Entertainment Enterprises might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

To conclude, we've found that Zee Entertainment Enterprises is reinvesting in the business, but returns have been falling. And in the last five years, the stock has given away 62% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Like most companies, Zee Entertainment Enterprises does come with some risks, and we've found 3 warning signs that you should be aware of.

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.