Slowing Rates Of Return At Curtiss-Wright (NYSE:CW) Leave Little Room For Excitement

By
Simply Wall St
Published
July 01, 2021
NYSE:CW
Source: Shutterstock

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. That's why when we briefly looked at Curtiss-Wright's (NYSE:CW) ROCE trend, we were pretty happy with what we saw.

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 Curtiss-Wright, this is the formula:

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

0.12 = US$388m ÷ (US$4.0b - US$735m) (Based on the trailing twelve months to March 2021).

Therefore, Curtiss-Wright has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 7.8% generated by the Aerospace & Defense industry.

See our latest analysis for Curtiss-Wright

roce
NYSE:CW Return on Capital Employed July 1st 2021

In the above chart we have measured Curtiss-Wright's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Curtiss-Wright's ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 12% and the business has deployed 30% more capital into its operations. Since 12% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

What We Can Learn From Curtiss-Wright's ROCE

In the end, Curtiss-Wright has proven its ability to adequately reinvest capital at good rates of return. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Like most companies, Curtiss-Wright does come with some risks, and we've found 3 warning signs that you should be aware of.

While Curtiss-Wright 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. 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.
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