Investors Could Be Concerned With Air New Zealand's (NZSE:AIR) Returns On Capital
To avoid investing in a business that's in decline, there's a few financial metrics that can provide early indications of aging. When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. Having said that, after a brief look, Air New Zealand (NZSE:AIR) we aren't filled with optimism, but let's investigate further.
This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.
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. The formula for this calculation on Air New Zealand is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.042 = NZ$218m ÷ (NZ$8.8b - NZ$3.6b) (Based on the trailing twelve months to December 2024).
Therefore, Air New Zealand has an ROCE of 4.2%. In absolute terms, that's a low return and it also under-performs the Airlines industry average of 9.0%.
See our latest analysis for Air New Zealand
In the above chart we have measured Air New Zealand's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Air New Zealand .
In terms of Air New Zealand's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 5.4%, however they're now substantially lower than that as we saw above. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Air New Zealand becoming one if things continue as they have.
On a side note, Air New Zealand's current liabilities are still rather high at 41% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.
All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Long term shareholders who've owned the stock over the last five years have experienced a 35% depreciation in their investment, so it appears the market might not like these trends either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.
One more thing, we've spotted 2 warning signs facing Air New Zealand that you might find interesting.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
4 hours ago
- Yahoo
Asian Stocks Possibly Priced Below Their Estimated Value In June 2025
As global markets navigate a complex landscape of trade tensions and economic indicators, Asian stock markets present intriguing opportunities for investors seeking value. In this environment, identifying stocks that may be priced below their estimated value can offer potential advantages, especially when considering factors such as market resilience and government stimulus efforts in the region. Name Current Price Fair Value (Est) Discount (Est) Taiyo Yuden (TSE:6976) ¥2420.00 ¥4746.14 49% Lucky Harvest (SZSE:002965) CN¥41.69 CN¥81.92 49.1% Kanto Denka Kogyo (TSE:4047) ¥843.00 ¥1678.38 49.8% Heartland Group Holdings (NZSE:HGH) NZ$0.78 NZ$1.56 49.9% Good Will Instrument (TWSE:2423) NT$44.20 NT$87.29 49.4% Fuji (TSE:6134) ¥2247.50 ¥4448.27 49.5% Ficont Industry (Beijing) (SHSE:605305) CN¥26.48 CN¥52.37 49.4% Dive (TSE:151A) ¥924.00 ¥1813.20 49% cottaLTD (TSE:3359) ¥436.00 ¥859.36 49.3% BalnibarbiLtd (TSE:3418) ¥1162.00 ¥2283.94 49.1% Click here to see the full list of 300 stocks from our Undervalued Asian Stocks Based On Cash Flows screener. Here's a peek at a few of the choices from the screener. Overview: APR Co., Ltd is a company that manufactures and sells cosmetic products for both men and women, with a market cap of ₩4.47 billion. Operations: The company's revenue is primarily derived from the Cosmetics Sector, which generates ₩1.00 billion, followed by the Clothing Fashion Sector with ₩49.44 million. Estimated Discount To Fair Value: 32.8% APR Co., Ltd. is trading at ₩120,800, significantly below its estimated fair value of ₩179,828.39, suggesting it may be undervalued based on cash flows. The company has shown robust earnings growth of 56.4% over the past year and is expected to continue growing at a significant rate of 28.6% annually over the next three years, outpacing the KR market's growth rate. However, its share price has been highly volatile recently despite high non-cash earnings quality. Upon reviewing our latest growth report, APR's projected financial performance appears quite optimistic. Get an in-depth perspective on APR's balance sheet by reading our health report here. Overview: Nongfu Spring Co., Ltd. is engaged in researching, developing, producing, and marketing packaged drinking water and beverage products primarily in Mainland China, with a market cap of approximately HK$444.80 billion. Operations: Nongfu Spring generates revenue from several segments, including CN¥15.95 billion from water products, CN¥16.74 billion from ready-to-drink tea products, CN¥4.08 billion from juice beverage products, and CN¥4.93 billion from functional drinks products. Estimated Discount To Fair Value: 18.9% Nongfu Spring, trading at HK$39.55, is undervalued relative to its fair value estimate of HK$48.77. Despite slower forecasted revenue growth of 10.7% annually compared to the broader market, its earnings are expected to grow slightly faster than the Hong Kong market at 10.5% per year. Recent board and auditor changes may influence corporate governance positively, while a dividend increase to RMB 0.76 per share reflects financial stability amidst modest profit growth projections. Our growth report here indicates Nongfu Spring may be poised for an improving outlook. Delve into the full analysis health report here for a deeper understanding of Nongfu Spring. Overview: Shengyi Electronics Co., Ltd. focuses on the research, development, production, and sales of printed circuit boards in China with a market cap of CN¥33.74 billion. Operations: Revenue Segments (in millions of CN¥): Estimated Discount To Fair Value: 45.5% Shengyi Electronics, trading at CN¥41.33, is undervalued with a fair value estimate of CN¥75.81. Earnings are expected to grow significantly at 35.2% per year, surpassing the broader Chinese market's growth rate. Recent financial results show strong performance with first-quarter revenue reaching CN¥1.58 billion and net income rising to CN¥200.18 million from the previous year's figures. A share repurchase program worth up to CN¥100 million further underscores its robust cash flow position. Our comprehensive growth report raises the possibility that Shengyi Electronics is poised for substantial financial growth. Click here and access our complete balance sheet health report to understand the dynamics of Shengyi Electronics. Access the full spectrum of 300 Undervalued Asian Stocks Based On Cash Flows by clicking on this link. Have you diversified into these companies? Leverage the power of Simply Wall St's portfolio to keep a close eye on market movements affecting your investments. Simply Wall St is a revolutionary app designed for long-term stock investors, it's free and covers every market in the world. Explore high-performing small cap companies that haven't yet garnered significant analyst attention. Diversify your portfolio with solid dividend payers offering reliable income streams to weather potential market turbulence. Fuel your portfolio with companies showing strong growth potential, backed by optimistic outlooks both from analysts and management. 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. Companies discussed in this article include KOSE:A278470 SEHK:9633 and SHSE:688183. This article was originally published by Simply Wall St. Have feedback on this article? Concerned about the content? with us directly. Alternatively, email editorial-team@ Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
9 hours ago
- Yahoo
Billionaire takes on Heathrow with plan for cut-price expansion
A billionaire hotel entrepreneur is spearheading a rival proposal to expand Heathrow, as he vows to deliver the project more cheaply than the airport would. Surinder Arora is drawing up plans for the project after Mike Kane, the aviation minister, said last week that the Government was open to alternative bids to build a third runway. As one of the biggest landowners at Heathrow through his eponymous property empire, Mr Arora has teamed up with US engineering giant Bechtel to forge ahead with his development bid. 'The Government has asked for submissions this summer and we will be there,' he told The Telegraph. Mr Arora welcomed the comments from Mr Kane, who has confirmed that ministers had 'asked for Heathrow or a third party' to present alternative runway proposals. 'It's exactly what we've been asking for,' said Mr Arora, who previously led a rival expansion bid in 2018. 'We have said previously that we could do Heathrow between 32pc and 34pc cheaper,' he said. 'Obviously, times have moved on, but I think we will look to push on that. 'We can deliver the whole thing, and without a shadow of a doubt, we'd build it cheaper than Heathrow Airport Limited. 'This will give the airlines and passengers the chance to make a choice.' Mr Arora signalled that he has already enlisted hundreds of consultants to work on the project, which could include plans for a shorter third runway. However, he has vowed to listen to what airlines want before submitting his proposal. The possibility of a shorter airstrip at Heathrow has emerged as a potential alternative to the airport's more ambitious plans, which some claim could cost up to £ a runway could both slash costs and shave years off the project's completion date by removing the need to divert the M25, Britain's busiest motorway, under the new strip. Like Mr Arora, Heathrow is also working on a proposal. But this is expected to include plans for a full-length runway. While that blueprint is enshrined in an Airports National Policy Statement (ANPS) adopted by Parliament in 2018, estimated costs are understood to have swelled from £14bn at 2014 prices to between £42bn and £63bn. A truncated runway would impose limits on the planes able to use it, but would nevertheless find favour with airlines that have pushed back against paying for the pricier option. The boss of one major carrier, speaking at the IATA industry gathering in Delhi last week, said the latest costing for the full-scale plan would require what he called an 'eye-watering' increase in ticket prices of between £75 to £100. Sir Tim Clark, head of Emirates, the world's biggest long-haul airline, said at the same event that he was against diverting the M25 and would back a shorter runway 'for landing purposes or single-aisle aircraft, anything to declutter what's there'. Heathrow Reimagined, a campaign group that includes British Airways (BA) and Virgin Atlantic, said it 'welcomes competition and alternative proposals designed to increase capacity at the airport more efficiently'. BA, which operates about half of the flights at Heathrow, declined to specify its favoured option but said 'a solution should consider the airport boundaries, runway length, total project cost and the impact on consumers.' Willie Walsh, the former chief of parent group IAG, said in 2017 that spanning the motorway would add unnecessary cost and complexity. 'Airlines were never consulted on the runway length and they can operate perfectly well from a slightly shorter runway,' he said. According to stipulations in the ANPS, Heathrow's third runway should have a length of 'at least 3,500m' that would be able to handle 260,000 extra flights or more each year. However, a strip measuring 3.2km could accommodate 90pc of flights, according to the boss of a UK airline speaking at the same event in India, who described the prospect of diverting the M25 as 'scary'. Heathrow's northern runway stretches for 3.9km, making it the longest active landing airstrip in the UK, while the southern one measures almost 3.7km. Reports in March suggested that Heathrow itself was looking seriously at modifying its pending submission to the Government to feature a shorter runway in order to cut costs. However, Heathrow chief Thomas Woldbye denied that it was the case, saying that he intended to deliver the longer runway specified and that ripping up the busiest two-mile stretch of the M25 could not be avoided. What remains unclear is how much weight the Government will give to reducing delivery costs versus the extra time in planning that a radical alternative to the previous proposals might require. Rachel Reeves, the Chancellor, said in January she wanted to see 'spades in the ground' on the project before the next general election and the start of flights by 2035. Departing from the requirements of the ANPS could mean that the planning process would be lengthier. The outcome of a Civil Aviation Authority (CAA) review of Heathrow's mechanism for charging airlines in the context of the third runway will also be of fundamental importance. Heathrow Reimagined is pressing ministers to abandon rules under which money spent on the airport can be charged directly to airlines through increased fees. While those fees are regulated by the CAA, carriers say the system provides no incentive for Heathrow to wring efficiencies from infrastructure projects. In his comments, reported in the London Standard, Mr Kane declined to say if Heathrow shareholders, airlines or passengers should foot the bill. Meanwhile, a Labour insider said Mr Kane's comments were intended to convey a willingness to introduce competition into the runway process, rather than a pledge to do so. However, it appears the ball may already be rolling. 'Heathrow is a huge business, and competition is a good thing,' said Mr Arora. 'We're not here to slow or delay things. We will do whatever is necessary.' The Department for Transport said that while Heathrow Airport had previously been deemed the only credible party able to deliver the runway project in its entirety, it remains open-minded and will treat other proposals fairly. A spokesman said: 'There is no live planning application for Heathrow expansion at present, but when plans come forward, we will ensure any expansion is assessed against the Government's legal, carbon and environmental obligations.' Broaden your horizons with award-winning British journalism. Try The Telegraph free for 1 month with unlimited access to our award-winning website, exclusive app, money-saving offers and more. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Bloomberg
15 hours ago
- Bloomberg
A Luxury Travel Bubble Is Swelling
When you go on vacation, do you ever treat yourself to an upgraded airline seat? Or book the (admittedly cheapest) room at a five-star hotel? Maybe splurge on a spa day or celebratory Michelin-starred meal? If any of this sounds familiar, you may be what the travel industry calls an 'aspirational' luxury traveler. And much to the industry's potential dismay, you're also inflating an economic bubble that may be about to burst. According to McKinsey, the aspirational set, defined as those with between $100,000 and $1 million in net worth, now accounts for 35% of the global luxury travel market. In 2023, they spent $84 billion on high-end vacations, a figure expected to grow to $107 billion by 2028. That purchasing power has helped turn luxury travel from a glamorous niche into a major profit center, sparking a race among airlines, hotels, cruise lines, tour companies and the rest to cater to and capture this market segment. But what happens when economic uncertainty suddenly brings aspirations back down to earth?
