Returns On Capital At Zebra Technologies (NASDAQ:ZBRA) Paint A Concerning Picture

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. Although, when we looked at Zebra Technologies (NASDAQ:ZBRA), it didn't seem to tick all of these boxes.

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)

0.081 = US$481m ÷ (US$7.5b - US$1.5b) (Based on the trailing twelve months to June 2024).

Thus, Zebra Technologies has an ROCE of 8.1%. In absolute terms, that's a low return but it's around the Electronic industry average of 9.8%.

See our latest analysis for Zebra Technologies

Above you can see how the current ROCE for Zebra Technologies compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Zebra Technologies .

How Are Returns Trending?

On the surface, the trend of ROCE at Zebra Technologies doesn't inspire confidence. To be more specific, ROCE has fallen from 19% over the last five years. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

Our Take On Zebra Technologies' ROCE

We're a bit apprehensive about Zebra Technologies because despite more capital being deployed in the business, returns on that capital and sales have both fallen. However the stock has delivered a 92% return to shareholders over the last five years, so investors might be expecting the trends to turn around. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

On a final note, we've found 3 warning signs for Zebra Technologies that we think you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.