Stock Analysis

Returns On Capital Are Showing Encouraging Signs At Zebra Technologies (NASDAQ:ZBRA)

NasdaqGS:ZBRA
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What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Speaking of which, we noticed some great changes in Zebra Technologies' (NASDAQ:ZBRA) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Zebra Technologies:

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

0.18 = US$946m ÷ (US$7.4b - US$2.1b) (Based on the trailing twelve months to July 2022).

Thus, Zebra Technologies has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 12% it's much better.

See our latest analysis for Zebra Technologies

roce
NasdaqGS:ZBRA Return on Capital Employed October 3rd 2022

In the above chart we have measured Zebra Technologies' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Zebra Technologies.

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Zebra Technologies. Over the last five years, returns on capital employed have risen substantially to 18%. The amount of capital employed has increased too, by 52%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line

To sum it up, Zebra Technologies has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 137% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Zebra Technologies can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 4 warning signs with Zebra Technologies and understanding them should be part of your investment process.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

Valuation is complex, but we're helping make it simple.

Find out whether Zebra Technologies is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.