Why We Like The Returns At ZIM Integrated Shipping Services (NYSE:ZIM)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at ZIM Integrated Shipping Services' (NYSE:ZIM) look very promising so lets take 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 ZIM Integrated Shipping Services:

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

0.46 = US$3.8b ÷ (US$12b - US$3.2b) (Based on the trailing twelve months to March 2023).

So, ZIM Integrated Shipping Services has an ROCE of 46%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.

Check out our latest analysis for ZIM Integrated Shipping Services

In the above chart we have measured ZIM Integrated Shipping Services' 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 ZIM Integrated Shipping Services.

SWOT Analysis for ZIM Integrated Shipping Services

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at ZIM Integrated Shipping Services. The data shows that returns on capital have increased substantially over the last five years to 46%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 690%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 28%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that ZIM Integrated Shipping Services has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line

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 ZIM Integrated Shipping Services has. Astute investors may have an opportunity here because the stock has declined 66% in the last year. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for ZIM Integrated Shipping Services (of which 1 is concerning!) that you should know about.

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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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.