Zee Media (NSE:ZEEMEDIA) Shareholders Will Want The ROCE Trajectory To Continue

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Zee Media (NSE:ZEEMEDIA) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on Zee Media is:

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

0.17 = ₹1.4b ÷ (₹11b - ₹2.7b) (Based on the trailing twelve months to June 2021).

Therefore, Zee Media has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 13% generated by the Media industry.

Check out our latest analysis for Zee Media

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 want to delve into the historical earnings, revenue and cash flow of Zee Media, check out these free graphs here.

How Are Returns Trending?

Zee Media's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 314% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Key Takeaway

In summary, we're delighted to see that Zee Media has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has fallen 50% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Zee Media does have some risks though, and we've spotted 4 warning signs for Zee Media that you might be interested in.

While Zee Media may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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