General Dynamics (NYSE:GD) Hasn't Managed To Accelerate Its Returns

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. That's why when we briefly looked at General Dynamics' (NYSE:GD) ROCE trend, we were pretty happy with what we saw.

What Is 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. To calculate this metric for General Dynamics, this is the formula:

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

0.11 = US$4.2b ÷ (US$53b - US$16b) (Based on the trailing twelve months to July 2023).

So, General Dynamics has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 9.4% generated by the Aerospace & Defense industry.

See our latest analysis for General Dynamics

Above you can see how the current ROCE for General Dynamics 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 report on analyst forecasts for the company.

So How Is General Dynamics' ROCE Trending?

While the returns on capital are good, they haven't moved much. The company has consistently earned 11% for the last five years, and the capital employed within the business has risen 21% in that time. 11% is a pretty standard return, and it provides some comfort knowing that General Dynamics has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line

The main thing to remember is that General Dynamics has proven its ability to continually reinvest at respectable rates of return. In light of this, the stock has only gained 21% over the last five years for shareholders who have owned the stock in this period. So to determine if General Dynamics is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

Like most companies, General Dynamics does come with some risks, and we've found 2 warning signs that you should be aware of.

While General Dynamics may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.