Why You Should Care About Cirrus Aircraft's (HKG:2507) Strong Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. That's why when we briefly looked at Cirrus Aircraft's (HKG:2507) ROCE trend, we were very happy with what we saw.

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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. To calculate this metric for Cirrus Aircraft, this is the formula:

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

0.20 = US$187m ÷ (US$1.4b - US$503m) (Based on the trailing twelve months to June 2025).

Therefore, Cirrus Aircraft has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Aerospace & Defense industry average of 7.4%.

Check out our latest analysis for Cirrus Aircraft

In the above chart we have measured Cirrus Aircraft'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 Cirrus Aircraft .

The Trend Of ROCE

In terms of Cirrus Aircraft's history of ROCE, it's quite impressive. The company has employed 92% more capital in the last three years, and the returns on that capital have remained stable at 20%. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Cirrus Aircraft can keep this up, we'd be very optimistic about its future.

The Key Takeaway

In summary, we're delighted to see that Cirrus Aircraft has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And long term investors would be thrilled with the 181% return they've received over the last year. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

If you'd like to know about the risks facing Cirrus Aircraft, we've discovered 1 warning sign that you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.