Return Trends At Alliance Aviation Services (ASX:AQZ) Aren't Appealing

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Alliance Aviation Services (ASX:AQZ) looks decent, right now, so lets see what the trend of returns can tell us.

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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. Analysts use this formula to calculate it for Alliance Aviation Services:

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

0.12 = AU$116m ÷ (AU$1.1b - AU$144m) (Based on the trailing twelve months to December 2024).

Thus, Alliance Aviation Services has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 8.9% generated by the Airlines industry.

View our latest analysis for Alliance Aviation Services

In the above chart we have measured Alliance Aviation Services' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Alliance Aviation Services .

What Does the ROCE Trend For Alliance Aviation Services Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 280% more capital in the last five years, and the returns on that capital have remained stable at 12%. Since 12% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

What We Can Learn From Alliance Aviation Services' ROCE

The main thing to remember is that Alliance Aviation Services has proven its ability to continually reinvest at respectable rates of return. However, despite the favorable fundamentals, the stock has fallen 26% over the last five years, so there might be an opportunity here for astute investors. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

One more thing to note, we've identified 2 warning signs with Alliance Aviation Services and understanding these should be part of your investment process.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.