Dassault Aviation (EPA:AM) Has More To Do To Multiply In Value Going Forward

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Dassault Aviation (EPA:AM), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

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 Dassault Aviation:

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

0.082 = €412m ÷ (€14b - €9.0b) (Based on the trailing twelve months to June 2021).

Therefore, Dassault Aviation has an ROCE of 8.2%. In absolute terms, that's a low return but it's around the Aerospace & Defense industry average of 9.0%.

See our latest analysis for Dassault Aviation

Above you can see how the current ROCE for Dassault Aviation compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Dassault Aviation.

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for Dassault Aviation's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Dassault Aviation doesn't end up being a multi-bagger in a few years time.

Another thing to note, Dassault Aviation has a high ratio of current liabilities to total assets of 64%. 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.

In Conclusion...

We can conclude that in regards to Dassault Aviation's returns on capital employed and the trends, there isn't much change to report on. Unsurprisingly then, the total return to shareholders over the last five years has been flat. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

On a final note, we found 2 warning signs for Dassault Aviation (1 is a bit concerning) you should be aware of.

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.

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.

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