Zebra Technologies (NASDAQ:ZBRA) Is Very Good At Capital Allocation

By
Simply Wall St
Published
December 14, 2021
NasdaqGS:ZBRA
Source: Shutterstock

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at the ROCE trend of Zebra Technologies (NASDAQ:ZBRA) we really liked what we saw.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Zebra Technologies is:

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

0.23 = US$1.0b ÷ (US$5.9b - US$1.6b) (Based on the trailing twelve months to October 2021).

So, Zebra Technologies has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 9.9% earned by companies in a similar industry.

See our latest analysis for Zebra Technologies

roce
NasdaqGS:ZBRA Return on Capital Employed December 14th 2021

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.

So How Is Zebra Technologies' ROCE Trending?

Zebra Technologies is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 293% 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.

Our Take On Zebra Technologies' ROCE

To sum it up, Zebra Technologies is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 601% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

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

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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