Stock Analysis

Zebra Technologies (NASDAQ:ZBRA) Shareholders Will Want The ROCE Trajectory To Continue

NasdaqGS:ZBRA
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There are a few key trends to look for if we want to identify the next 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Zebra Technologies (NASDAQ:ZBRA) so let's look a bit deeper.

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 Zebra Technologies, this is the formula:

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

0.18 = US$955m ÷ (US$7.5b - US$2.1b) (Based on the trailing twelve months to April 2023).

So, Zebra Technologies has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 14% it's much better.

See our latest analysis for Zebra Technologies

roce
NasdaqGS:ZBRA Return on Capital Employed July 30th 2023

In the above chart we have measured Zebra Technologies' 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 report on analyst forecasts for the company.

The Trend Of ROCE

We like the trends that we're seeing from Zebra Technologies. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 63% more capital is being employed now too. So we're very much inspired by what we're seeing at Zebra Technologies thanks to its ability to profitably reinvest capital.

What We Can Learn From Zebra Technologies' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Zebra Technologies has. And a remarkable 110% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know more about Zebra Technologies, we've spotted 3 warning signs, and 1 of them is a bit concerning.

While Zebra Technologies 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.

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.

View the Free Analysis

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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.