We Like These Underlying Return On Capital Trends At SAB Zenzele Kabili Holdings (RF) (JSE:SZK)

What trends should we look for it we want to identify stocks that can 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in SAB Zenzele Kabili Holdings (RF)'s (JSE:SZK) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on SAB Zenzele Kabili Holdings (RF) is:

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

0.0072 = R35m ÷ (R5.2b - R286m) (Based on the trailing twelve months to December 2022).

Therefore, SAB Zenzele Kabili Holdings (RF) has an ROCE of 0.7%. Ultimately, that's a low return and it under-performs the Beverage industry average of 17%.

See our latest analysis for SAB Zenzele Kabili Holdings (RF)

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of SAB Zenzele Kabili Holdings (RF), check out these free graphs here.

The Trend Of ROCE

We're delighted to see that SAB Zenzele Kabili Holdings (RF) is reaping rewards from its investments and has now broken into profitability. The company now earns 0.7% on its capital, because one year ago it was incurring losses. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

In Conclusion...

As discussed above, SAB Zenzele Kabili Holdings (RF) appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Astute investors may have an opportunity here because the stock has declined 26% in the last year. With that in mind, we believe the promising trends warrant this stock for further investigation.

One final note, you should learn about the 3 warning signs we've spotted with SAB Zenzele Kabili Holdings (RF) (including 1 which is significant) .

While SAB Zenzele Kabili Holdings (RF) 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.

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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.