Canada markets closed
  • S&P/TSX

    21,188.19
    +101.20 (+0.48%)
     
  • S&P 500

    4,536.19
    +16.56 (+0.37%)
     
  • DOW

    35,609.34
    +152.03 (+0.43%)
     
  • CAD/USD

    0.8135
    +0.0015 (+0.18%)
     
  • CRUDE OIL

    84.25
    +0.38 (+0.45%)
     
  • BTC-CAD

    79,568.79
    +571.33 (+0.72%)
     
  • CMC Crypto 200

    1,530.82
    +50.02 (+3.38%)
     
  • GOLD FUTURES

    1,788.50
    +3.60 (+0.20%)
     
  • RUSSELL 2000

    2,289.77
    +13.85 (+0.61%)
     
  • 10-Yr Bond

    1.6360
    +0.0010 (+0.06%)
     
  • NASDAQ futures

    15,359.00
    -18.50 (-0.12%)
     
  • VOLATILITY

    15.49
    -0.21 (-1.34%)
     
  • FTSE

    7,223.10
    +5.57 (+0.08%)
     
  • NIKKEI 225

    29,173.33
    -82.22 (-0.28%)
     
  • CAD/EUR

    0.6970
    +0.0005 (+0.07%)
     

Zimplats Holdings (ASX:ZIM) Is Very Good At Capital Allocation

  • Oops!
    Something went wrong.
    Please try again later.
·2 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at the ROCE trend of Zimplats Holdings (ASX:ZIM) 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 Zimplats Holdings is:

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

0.39 = US$797m ÷ (US$2.2b - US$128m) (Based on the trailing twelve months to June 2021).

So, Zimplats Holdings has an ROCE of 39%. That's a fantastic return and not only that, it outpaces the average of 9.8% earned by companies in a similar industry.

View our latest analysis for Zimplats Holdings

roce
roce

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'd like to look at how Zimplats Holdings has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Zimplats Holdings is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 39%. Basically the business is earning more per dollar of capital invested and in addition to that, 71% more capital is being employed now too. So we're very much inspired by what we're seeing at Zimplats Holdings thanks to its ability to profitably reinvest capital.

Our Take On Zimplats Holdings' 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 Zimplats Holdings has. And a remarkable 356% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to know some of the risks facing Zimplats Holdings we've found 2 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.

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.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting