Evergreen Aviation Technologies (TWSE:2645) Might Have The Makings Of A Multi-Bagger

What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Evergreen Aviation Technologies (TWSE:2645) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Evergreen Aviation Technologies is:

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

0.12 = NT$2.3b ÷ (NT$23b - NT$3.4b) (Based on the trailing twelve months to September 2024).

Therefore, Evergreen Aviation Technologies has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 8.2% generated by the Aerospace & Defense industry.

View our latest analysis for Evergreen Aviation Technologies

Above you can see how the current ROCE for Evergreen Aviation Technologies 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 Evergreen Aviation Technologies for free.

What Does the ROCE Trend For Evergreen Aviation Technologies Tell Us?

Evergreen Aviation Technologies has not disappointed in regards to ROCE growth. We found that the returns on capital employed over the last five years have risen by 57%. The company is now earning NT$0.1 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 25% less than it was five years ago, which can be indicative of a business that's improving its efficiency. Evergreen Aviation Technologies may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 15%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Evergreen Aviation Technologies has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line On Evergreen Aviation Technologies' ROCE

In summary, it's great to see that Evergreen Aviation Technologies has been able to turn things around and earn higher returns on lower amounts of capital. Since the stock has only returned 3.2% to shareholders over the last year, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you want to continue researching Evergreen Aviation Technologies, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Evergreen Aviation Technologies 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.