What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Copa Holdings (NYSE:CPA) so let's look a bit deeper.

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. Analysts use this formula to calculate it for Copa Holdings:

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

0.17 = US$753m ÷ (US$5.7b - US$1.4b) (Based on the trailing twelve months to December 2024).

Therefore, Copa Holdings has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 8.8% generated by the Airlines industry.

See our latest analysis for Copa Holdings

In the above chart we have measured Copa Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Copa Holdings for free.

The Trend Of ROCE

Investors would be pleased with what's happening at Copa Holdings. Over the last five years, returns on capital employed have risen substantially to 17%. The amount of capital employed has increased too, by 28%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From Copa Holdings' ROCE

All in all, it's terrific to see that Copa Holdings is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 237% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Like most companies, Copa Holdings does come with some risks, and we've found 1 warning sign that you should be aware of.

While Copa Holdings 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.