What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we’d want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it’s a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in TransDigm Group’s (NYSE:TDG) returns on capital, so let’s have a look.

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What Is 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. To calculate this metric for TransDigm Group, this is the formula:

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

0.20 = US$4.0b ÷ (US$23b – US$2.2b) (Based on the trailing twelve months to June 2025).

So, TransDigm Group has an ROCE of 20%. That’s a fantastic return and not only that, it outpaces the average of 9.6% earned by companies in a similar industry.

See our latest analysis for TransDigm Group

In the above chart we have measured TransDigm Group’s 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 analyst report for TransDigm Group .

So How Is TransDigm Group’s ROCE Trending?

Investors would be pleased with what’s happening at TransDigm Group. The data shows that returns on capital have increased substantially over the last five years to 20%. The company is effectively making more money per dollar of capital used, and it’s worth noting that the amount of capital has increased too, by 24%. So we’re very much inspired by what we’re seeing at TransDigm Group thanks to its ability to profitably reinvest capital.

The Bottom Line

In summary, it’s great to see that TransDigm Group can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 212% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it’s worth researching the company further to see if these trends are likely to persist.

On a final note, we found 3 warning signs for TransDigm Group (2 are concerning) you should be aware of.

TransDigm Group is not the only stock earning high returns. If you’d like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.