Yahoo Finance Returns On Capital At ZipRecruiter (NYSE:ZIP) Paint A Concerning Picture
What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at ZipRecruiter (NYSE:ZIP) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
Understanding 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 ZipRecruiter is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = US$94m ÷ (US$818m - US$128m) (Based on the trailing twelve months to September 2022).
Thus, ZipRecruiter has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Interactive Media and Services industry average of 5.2% it's much better.
See our latest analysis for ZipRecruiter
In the above chart we have measured ZipRecruiter's 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 ZipRecruiter.
How Are Returns Trending?
On the surface, the trend of ROCE at ZipRecruiter doesn't inspire confidence. To be more specific, ROCE has fallen from 41% over the last two years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.
On a related note, ZipRecruiter has decreased its current liabilities to 16% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.
Our Take On ZipRecruiter's ROCE
While returns have fallen for ZipRecruiter in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And there could be an opportunity here if other metrics look good too, because the stock has declined 34% in the last year. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.
ZipRecruiter could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.
While ZipRecruiter 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.
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