Investors Will Want Zebra Technologies' (NASDAQ:ZBRA) Growth In ROCE To Persist
What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. So when we looked at Zebra Technologies (NASDAQ:ZBRA) and its trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What Is It?
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)
0.18 = US$936m ÷ (US$7.5b - US$2.3b) (Based on the trailing twelve months to December 2022).
Therefore, Zebra Technologies has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 13% it's much better.
View 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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What Can We Tell From Zebra Technologies' ROCE Trend?
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%. The amount of capital employed has increased too, by 59%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
Our Take On Zebra Technologies' ROCE
In summary, it's great to see that Zebra Technologies can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 110% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
One more thing to note, we've identified 4 warning signs with Zebra Technologies and understanding them should be part of your investment process.
While Zebra Technologies isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
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