Copa Holdings (NYSE: CPA ) has demonstrated a promising trend in its Return On Capital Employed (ROCE), which has grown 81% over the last five years, according to data up until Thursday. The company's current ROCE stands at an impressive 24%, significantly outpacing the average of 8.2% earned by companies in a similar industry.
ROCE is a key metric that measures the pre-tax profit a company can generate from the capital employed in its business. For Copa Holdings, this was calculated as US$751m ÷ (US$5.1b - US$2.0b) based on the trailing twelve months to June 2023. This robust return indicates that the company is effectively reinvesting its profits at increasing rates of return.
Despite this positive trend, there has been a noticeable increase in the company's current liabilities over the same period. The ratio of current liabilities to total assets has reached approximately 39%. While this does not immediately pose a threat, it's worth noting that such an increase could introduce new risks for the business in the future.
Meanwhile, McDonald's (NYSE:NYSE: MCD ) and Orion (NYSE:OEC) have also shown attractive ROCE trends recently. McDonald's has maintained a steady ROCE of 24% over the last five years while increasing its capital employed by 57%. Similarly, Orion has consistently earned an ROCE of 17% for the last five years, and the capital employed within the business has risen 51% in that time.
However, despite Orion's favorable fundamentals, its stock has fallen 28% over the last five years, possibly presenting an opportunity for investors. On the other hand, McDonald's stock has risen strongly over the same period, suggesting that market expectations align with the company's strong fundamentals.
These trends suggest that companies with growing ROCE and expanding capital employed could be potential multi-baggers, offering attractive opportunities for investors.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
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