Investors Shouldn't Overlook A-Sonic Aerospace's (SGX:BTJ) Impressive Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in A-Sonic Aerospace's (SGX:BTJ) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on A-Sonic Aerospace is:

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

0.24 = US$11m ÷ (US$107m - US$63m) (Based on the trailing twelve months to December 2021).

Thus, A-Sonic Aerospace has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 4.3% earned by companies in a similar industry.

View our latest analysis for A-Sonic Aerospace

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 want to delve into the historical earnings, revenue and cash flow of A-Sonic Aerospace, check out these free graphs here.

What Does the ROCE Trend For A-Sonic Aerospace Tell Us?

A-Sonic Aerospace has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 24% which is a sight for sore eyes. In addition to that, A-Sonic Aerospace is employing 65% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

On a separate but related note, it's important to know that A-Sonic Aerospace has a current liabilities to total assets ratio of 59%, which we'd consider pretty high. 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...

In summary, it's great to see that A-Sonic Aerospace has managed to break into profitability and is continuing to reinvest in its business. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if A-Sonic Aerospace can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 3 warning signs facing A-Sonic Aerospace that you might find interesting.

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.