We Like These Underlying Return On Capital Trends At Park Aerospace (NYSE:PKE)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Park Aerospace (NYSE:PKE) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Park Aerospace:

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

0.066 = US$8.0m ÷ (US$128m - US$6.4m) (Based on the trailing twelve months to November 2023).

Therefore, Park Aerospace has an ROCE of 6.6%. Ultimately, that's a low return and it under-performs the Aerospace & Defense industry average of 9.8%.

Check out our latest analysis for Park Aerospace

Historical performance is a great place to start when researching a stock so above you can see the gauge for Park Aerospace's ROCE against it's prior returns. If you're interested in investigating Park Aerospace's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Park Aerospace's ROCE Trend?

Park Aerospace has not disappointed in regards to ROCE growth. We found that the returns on capital employed over the last five years have risen by 155%. The company is now earning US$0.07 per dollar of capital employed. In regards to capital employed, Park Aerospace appears to been achieving more with less, since the business is using 26% less capital to run its operation. Park Aerospace may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

Our Take On Park Aerospace's ROCE

From what we've seen above, Park Aerospace has managed to increase it's returns on capital all the while reducing it's capital base. Since the stock has only returned 12% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you'd like to know about the risks facing Park Aerospace, we've discovered 2 warning signs that you should be aware of.

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.