Spring Airlines (SHSE:601021) Has Some Way To Go To Become A Multi-Bagger

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Spring Airlines (SHSE:601021), it didn't seem to tick all of these boxes.

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. The formula for this calculation on Spring Airlines is:

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

0.097 = CN¥3.2b ÷ (CN¥43b - CN¥9.9b) (Based on the trailing twelve months to March 2024).

Thus, Spring Airlines has an ROCE of 9.7%. In absolute terms, that's a low return but it's around the Airlines industry average of 8.7%.

View our latest analysis for Spring Airlines

Above you can see how the current ROCE for Spring Airlines compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Spring Airlines .

What Does the ROCE Trend For Spring Airlines Tell Us?

There are better returns on capital out there than what we're seeing at Spring Airlines. Over the past five years, ROCE has remained relatively flat at around 9.7% and the business has deployed 61% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

What We Can Learn From Spring Airlines' ROCE

Long story short, while Spring Airlines has been reinvesting its capital, the returns that it's generating haven't increased. And with the stock having returned a mere 22% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Spring Airlines does have some risks though, and we've spotted 2 warning signs for Spring Airlines that you might be interested in.

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.