Aecc Aero-Engine ControlLtd (SZSE:000738) Might Have The Makings Of A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Aecc Aero-Engine ControlLtd's (SZSE:000738) returns on capital, so let's have a look.

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

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 Aecc Aero-Engine ControlLtd:

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

0.06 = CN¥779m ÷ (CN¥16b - CN¥3.0b) (Based on the trailing twelve months to June 2024).

Thus, Aecc Aero-Engine ControlLtd has an ROCE of 6.0%. On its own that's a low return, but compared to the average of 4.7% generated by the Aerospace & Defense industry, it's much better.

See our latest analysis for Aecc Aero-Engine ControlLtd

In the above chart we have measured Aecc Aero-Engine ControlLtd'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 analyst report for Aecc Aero-Engine ControlLtd .

What Can We Tell From Aecc Aero-Engine ControlLtd's ROCE Trend?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 6.0%. The amount of capital employed has increased too, by 114%. So we're very much inspired by what we're seeing at Aecc Aero-Engine ControlLtd thanks to its ability to profitably reinvest capital.

What We Can Learn From Aecc Aero-Engine ControlLtd's ROCE

In summary, it's great to see that Aecc Aero-Engine ControlLtd 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. Since the stock has only returned 23% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

Aecc Aero-Engine ControlLtd does have some risks though, and we've spotted 1 warning sign for Aecc Aero-Engine ControlLtd that you might be interested in.

While Aecc Aero-Engine ControlLtd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.