Stock Analysis

Irkut (MCX:IRKT) Is Investing Its Capital With Increasing Efficiency

MISX:IRKT
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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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Irkut's (MCX:IRKT) returns on capital, so let's have a look.

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. Analysts use this formula to calculate it for Irkut:

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

0.27 = ₽21b ÷ (₽278b - ₽199b) (Based on the trailing twelve months to June 2021).

Thus, Irkut has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Aerospace & Defense industry average of 8.9%.

See our latest analysis for Irkut

roce
MISX:IRKT Return on Capital Employed December 25th 2021

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Irkut has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Irkut's ROCE Trend?

We're delighted to see that Irkut is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but now it's turned around, earning 27% which is no doubt a relief for some early shareholders. Additionally, the business is utilizing 28% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. The reduction could indicate that the company is selling some assets, and considering returns are up, they appear to be selling the right ones.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 72% of its operations, which isn't ideal. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

Our Take On Irkut's ROCE

In the end, Irkut has proven it's capital allocation skills are good with those higher returns from less amount of capital. Since the stock has returned a staggering 182% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a final note, we found 4 warning signs for Irkut (3 make us uncomfortable) you should be aware of.

Irkut is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

Valuation is complex, but we're helping make it simple.

Find out whether Irkut is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.

About MISX:IRKT

Irkut

Irkut Corporation researches, designs, tests, manufactures, sells, and markets military and civil aircraft for Russian and foreign governments, and aviation and leasing companies.

Questionable track record with weak fundamentals.

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