BOC Aviation (HKG:2588) Has More To Do To Multiply In Value Going Forward

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. In light of that, when we looked at BOC Aviation (HKG:2588) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for BOC Aviation, this is the formula:

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

0.06 = US$1.2b ÷ (US$23b - US$2.8b) (Based on the trailing twelve months to June 2022).

Therefore, BOC Aviation has an ROCE of 6.0%. In absolute terms, that's a low return but it's around the Trade Distributors industry average of 5.4%.

Check out our latest analysis for BOC Aviation

Above you can see how the current ROCE for BOC Aviation 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 BOC Aviation here for free.

The Trend Of ROCE

The returns on capital haven't changed much for BOC Aviation in recent years. The company has consistently earned 6.0% for the last five years, and the capital employed within the business has risen 54% in that time. 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.

What We Can Learn From BOC Aviation's ROCE

As we've seen above, BOC Aviation's returns on capital haven't increased but it is reinvesting in the business. Since the stock has gained an impressive 83% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for BOC Aviation (of which 1 can't be ignored!) that you should know about.

While BOC Aviation may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.