Return Trends At Willis Lease Finance (NASDAQ:WLFC) Aren't Appealing

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Willis Lease Finance (NASDAQ:WLFC), we don't think it's current trends fit the mold of a multi-bagger.

Our free stock report includes 2 warning signs investors should be aware of before investing in Willis Lease Finance. Read for free now.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Willis Lease Finance, this is the formula:

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

0.082 = US$252m ÷ (US$3.3b - US$242m) (Based on the trailing twelve months to December 2024).

Therefore, Willis Lease Finance has an ROCE of 8.2%. In absolute terms, that's a low return and it also under-performs the Trade Distributors industry average of 11%.

View our latest analysis for Willis Lease Finance

Above you can see how the current ROCE for Willis Lease Finance compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Willis Lease Finance .

So How Is Willis Lease Finance's ROCE Trending?

There are better returns on capital out there than what we're seeing at Willis Lease Finance. The company has consistently earned 8.2% for the last five years, and the capital employed within the business has risen 71% 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.

The Key Takeaway

As we've seen above, Willis Lease Finance's returns on capital haven't increased but it is reinvesting in the business. Yet to long term shareholders the stock has gifted them an incredible 688% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Willis Lease Finance (of which 1 doesn't sit too well with us!) that you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.