雅虎香港財經 Delta Air Lines (NYSE:DAL) Will Want To Turn Around Its Return Trends
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Having said that, from a first glance at Delta Air Lines (NYSE:DAL) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
Understanding Return On Capital Employed (ROCE)
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 Delta Air Lines:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = US$5.1b ÷ (US$73b - US$28b) (Based on the trailing twelve months to March 2023).
So, Delta Air Lines has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 6.7% generated by the Airlines industry.
View our latest analysis for Delta Air Lines
In the above chart we have measured Delta Air Lines' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Delta Air Lines.
What Does the ROCE Trend For Delta Air Lines Tell Us?
When we looked at the ROCE trend at Delta Air Lines, we didn't gain much confidence. Around five years ago the returns on capital were 17%, but since then they've fallen to 11%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.
What We Can Learn From Delta Air Lines' ROCE
While returns have fallen for Delta Air Lines in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And there could be an opportunity here if other metrics look good too, because the stock has declined 28% in the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.
Delta Air Lines does have some risks though, and we've spotted 2 warning signs for Delta Air Lines that you might be interested in.
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.
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