Air Canada (TSE:AC) Hasn’t Managed To Accelerate Its Returns #CanadaFinance

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we’d want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. However, after briefly looking over the numbers, we don’t think Air Canada (TSE:AC) has the makings of a multi-bagger going forward, but let’s have a look at why that may be.

For those who don’t know, ROCE is a measure of a company’s yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Air Canada is:

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

0.066 = CA$1.3b ÷ (CA$31b – CA$11b) (Based on the trailing twelve months to December 2024).

So, Air Canada has an ROCE of 6.6%. Ultimately, that’s a low return and it under-performs the Airlines industry average of 8.6%.

See our latest analysis for Air Canada

Above you can see how the current ROCE for Air Canada compares to its prior returns on capital, but there’s only so much you can tell from the past. If you’d like to see what analysts are forecasting going forward, you should check out our free analyst report for Air Canada .

Over the past five years, Air Canada’s ROCE and capital employed have both remained mostly flat. This tells us the company isn’t reinvesting in itself, so it’s plausible that it’s past the growth phase. So unless we see a substantial change at Air Canada in terms of ROCE and additional investments being made, we wouldn’t hold our breath on it being a multi-bagger.

In a nutshell, Air Canada has been trudging along with the same returns from the same amount of capital over the last five years. And in the last five years, the stock has given away 13% so the market doesn’t look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren’t typical of multi-baggers, so if that’s what you’re after, we think you might have more luck elsewhere.

If you want to know some of the risks facing Air Canada we’ve found 2 warning signs (1 can’t be ignored!) that you should be aware of before investing here.

While Air Canada 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.