Zimmer Biomet Holdings (NYSE:ZBH) 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? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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 when we looked at Zimmer Biomet Holdings (NYSE:ZBH) and its trend of ROCE, we really liked what we saw.

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Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Zimmer Biomet Holdings, this is the formula:

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

0.078 = US$1.5b ÷ (US$22b - US$2.3b) (Based on the trailing twelve months to March 2025).

Thus, Zimmer Biomet Holdings has an ROCE of 7.8%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 10%.

View our latest analysis for Zimmer Biomet Holdings

In the above chart we have measured Zimmer Biomet Holdings' 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 analyst report for Zimmer Biomet Holdings .

What Does the ROCE Trend For Zimmer Biomet Holdings Tell Us?

Zimmer Biomet Holdings has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 25% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

What We Can Learn From Zimmer Biomet Holdings' ROCE

As discussed above, Zimmer Biomet Holdings appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And since the stock has fallen 23% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing to note, we've identified 1 warning sign with Zimmer Biomet Holdings and understanding it should be part of your investment process.

While Zimmer Biomet Holdings 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.