Why The 21% Return On Capital At Howmet Aerospace (NYSE:HWM) Should Have Your Attention

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. With that in mind, the ROCE of Howmet Aerospace (NYSE:HWM) looks great, so lets see what the trend can tell us.

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Understanding Return On Capital Employed (ROCE)

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 Howmet Aerospace is:

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

0.21 = US$2.0b ÷ (US$11b - US$1.6b) (Based on the trailing twelve months to September 2025).

Thus, Howmet Aerospace has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Aerospace & Defense industry average of 11%.

View our latest analysis for Howmet Aerospace

Above you can see how the current ROCE for Howmet Aerospace compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Howmet Aerospace .

What Does the ROCE Trend For Howmet Aerospace Tell Us?

Howmet Aerospace is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 125% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On Howmet Aerospace's ROCE

To sum it up, Howmet Aerospace is collecting higher returns from the same amount of capital, and that's impressive. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Howmet Aerospace can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 1 warning sign for Howmet Aerospace you'll probably want to know about.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.