Returns Are Gaining Momentum At Zamet (WSE:ZMT)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Zamet (WSE:ZMT) 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. To calculate this metric for Zamet, this is the formula:

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

0.0021 = zł299k ÷ (zł240m - zł99m) (Based on the trailing twelve months to September 2022).

Therefore, Zamet has an ROCE of 0.2%. Ultimately, that's a low return and it under-performs the Energy Services industry average of 10%.

View our latest analysis for Zamet

Historical performance is a great place to start when researching a stock so above you can see the gauge for Zamet's ROCE against it's prior returns. If you'd like to look at how Zamet has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Zamet's ROCE Trending?

Shareholders will be relieved that Zamet has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 0.2% on its capital. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 41% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.

In Conclusion...

To bring it all together, Zamet has done well to increase the returns it's generating from its capital employed. And a remarkable 146% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to continue researching Zamet, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Zamet 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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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.