If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over TransDigm Group's (NYSE:TDG) trend of ROCE, we liked what we saw.
Return On Capital Employed (ROCE): What Is It?
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 TransDigm Group, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = US$3.1b ÷ (US$21b - US$1.8b) (Based on the trailing twelve months to December 2023).
Therefore, TransDigm Group has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Aerospace & Defense industry average of 9.7% it's much better.
In the above chart we have measured TransDigm Group'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 analyst report for TransDigm Group .
The Trend Of ROCE
While the current returns on capital are decent, they haven't changed much. The company has employed 64% more capital in the last five years, and the returns on that capital have remained stable at 17%. 17% is a pretty standard return, and it provides some comfort knowing that TransDigm Group has consistently earned this amount. 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.
The Key Takeaway
To sum it up, TransDigm Group has simply been reinvesting capital steadily, at those decent rates of return. And long term investors would be thrilled with the 228% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.
If you want to know some of the risks facing TransDigm Group we've found 3 warning signs (2 can't be ignored!) that you should be aware of before investing here.
While TransDigm Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. 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.
潜在的な多倍ものリターンを探したい場合、しばしば示唆を提供する基本動向があります。1つの一般的なアプローチは、会社を探して、...を持つことです。潜在的なマルチバッガーを見つけたい場合、クローズアップする傾向がある。増加している資本利益率(ROCE)と成長する資本利益額を持っている企業を探す方法の1つは、単純に言えば、これらの種類のビジネスはコンパウンディングマシンであり、収益を常により高い利回りで再投資し続けていることを意味します。したがって、TransDigm Group(NYSE:TDG)のROCEの傾向を分析したとき、私たちは見たものが好きでした。資本利益率(ROCE)とは何ですか?ROCEを把握していない方のために、ROCEは、企業が事業に投入した資本から生み出される税引き前利益の額を測定するものです。TransDigm Groupの場合、この指標を計算するには、以下の式を使用します。Return on Capital Employed = (利息費用および税金(EBIT)÷(総資産-流動負債)0.17 = US $ 3.1B ÷(US $ 21B-US $ 1.8B)(2023年12月末時点)したがって、TransDigm GroupのROCEは17%です。絶対的には、それは合格点ですが、航空宇宙&防衛業界の平均9.7%と比較すると、はるかに優れています。資本利益率が優れているという現在の状況は、ほとんど変化していません。過去5年間においてより多くの資本が投入され、その資本利益率は17%と安定しています。17%はかなり標準的なリターンですが、TransDigm Groupがこれを一貫して稼いでいることは安心材料になります。長期的には、このようなリターンはあまり興奮するものではありませんが、一貫性がある場合、株価リターンとして成果を上げることができます。まとめると、TransDigm Groupは、単に適正な利回りで着実に資本を再投資しています。長期投資家たちは、過去5年間に受け取った228%のリターンに喜んでいます。したがって、投資家によってポジティブなトレンドが考慮される場合がありますが、この株式の調査をさらに行う価値があると思います。
資本利益率(ROCE)とは何ですか?
TransDigm Groupの場合、この指標を計算するには、以下の式を使用します。Return on Capital Employed = (利息費用および税金(EBIT)÷(総資産-流動負債)
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)