There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. 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.

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. To calculate this metric for ZIM Integrated Shipping Services, this is the formula:

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

0.22 = US$1.8b ÷ (US$11b - US$2.7b) (Based on the trailing twelve months to September 2024).

Thus, ZIM Integrated Shipping Services has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Shipping industry average of 10%.

Check out our latest analysis for ZIM Integrated Shipping Services

Above you can see how the current ROCE for ZIM Integrated Shipping Services compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for ZIM Integrated Shipping Services .

What The Trend Of ROCE Can Tell Us

ZIM Integrated Shipping Services is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 22%. The amount of capital employed has increased too, by 716%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a related note, the company's ratio of current liabilities to total assets has decreased to 24%, which basically reduces it's funding from the likes of short-term creditors or suppliers. 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.

What We Can Learn From ZIM Integrated Shipping Services' ROCE

In summary, it's great to see that ZIM Integrated Shipping Services 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. Given the stock has declined 11% in the last three years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you'd like to know more about ZIM Integrated Shipping Services, we've spotted 2 warning signs, and 1 of them is a bit unpleasant.

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.