Dassault Aviation société anonyme (EPA:AM) Hasn't Managed To Accelerate Its Returns

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Having said that, from a first glance at Dassault Aviation société anonyme (EPA:AM) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Dassault Aviation société anonyme is:

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

0.089 = €532m ÷ (€22b - €17b) (Based on the trailing twelve months to June 2023).

Thus, Dassault Aviation société anonyme has an ROCE of 8.9%. On its own, that's a low figure but it's around the 10% average generated by the Aerospace & Defense industry.

Check out our latest analysis for Dassault Aviation société anonyme

Above you can see how the current ROCE for Dassault Aviation société anonyme compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Dassault Aviation société anonyme for free.

So How Is Dassault Aviation société anonyme's ROCE Trending?

The returns on capital haven't changed much for Dassault Aviation société anonyme in recent years. Over the past five years, ROCE has remained relatively flat at around 8.9% and the business has deployed 25% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Another thing to note, Dassault Aviation société anonyme has a high ratio of current liabilities to total assets of 74%. 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. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line

In conclusion, Dassault Aviation société anonyme has been investing more capital into the business, but returns on that capital haven't increased. Unsurprisingly, the stock has only gained 36% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you're still interested in Dassault Aviation société anonyme it's worth checking out our FREE intrinsic value approximation for AM to see if it's trading at an attractive price in other respects.

While Dassault Aviation société anonyme 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.