Investors Met With Slowing Returns on Capital At MTU Aero Engines (ETR:MTX)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over MTU Aero Engines' (ETR:MTX) trend of ROCE, we liked what we saw.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for MTU Aero Engines:

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

0.14 = €915m ÷ (€12b - €5.6b) (Based on the trailing twelve months to March 2025).

Thus, MTU Aero Engines has an ROCE of 14%. That's a relatively normal return on capital, and it's around the 13% generated by the Aerospace & Defense industry.

See our latest analysis for MTU Aero Engines

In the above chart we have measured MTU Aero Engines' 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 MTU Aero Engines .

How Are Returns Trending?

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 14% and the business has deployed 43% more capital into its operations. 14% is a pretty standard return, and it provides some comfort knowing that MTU Aero Engines 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.

On a separate but related note, it's important to know that MTU Aero Engines has a current liabilities to total assets ratio of 46%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From MTU Aero Engines' ROCE

The main thing to remember is that MTU Aero Engines has proven its ability to continually reinvest at respectable rates of return. And the stock has done incredibly well with a 136% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you're still interested in MTU Aero Engines it's worth checking out our FREE intrinsic value approximation for MTX to see if it's trading at an attractive price in other respects.

While MTU Aero Engines 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.