The Returns At AVIC Shenyang Aircraft (SHSE:600760) Aren't Growing

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over AVIC Shenyang Aircraft's (SHSE:600760) trend of ROCE, we liked what we saw.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for AVIC Shenyang Aircraft, this is the formula:

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

0.12 = CN¥2.5b ÷ (CN¥53b - CN¥32b) (Based on the trailing twelve months to September 2024).

Thus, AVIC Shenyang Aircraft has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Aerospace & Defense industry average of 4.5% it's much better.

See our latest analysis for AVIC Shenyang Aircraft

In the above chart we have measured AVIC Shenyang Aircraft's 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 AVIC Shenyang Aircraft .

What Can We Tell From AVIC Shenyang Aircraft's ROCE Trend?

While the returns on capital are good, they haven't moved much. The company has consistently earned 12% for the last five years, and the capital employed within the business has risen 113% in that time. 12% is a pretty standard return, and it provides some comfort knowing that AVIC Shenyang Aircraft has consistently earned this amount. 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.

Another thing to note, AVIC Shenyang Aircraft has a high ratio of current liabilities to total assets of 61%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On AVIC Shenyang Aircraft's ROCE

In the end, AVIC Shenyang Aircraft has proven its ability to adequately reinvest capital at good rates of return. On top of that, the stock has rewarded shareholders with a remarkable 205% return to those who've held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for AVIC Shenyang Aircraft (of which 1 doesn't sit too well with us!) that you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.