Returns On Capital At CCL Industries (TSE:CCL.B) Have Stalled

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of CCL Industries (TSE:CCL.B) looks decent, right now, so lets see what the trend of returns can tell us.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for CCL Industries, this is the formula:

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

0.12 = CA$856m ÷ (CA$8.7b - CA$1.5b) (Based on the trailing twelve months to December 2022).

Thus, CCL Industries has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 13% generated by the Packaging industry.

View our latest analysis for CCL Industries

In the above chart we have measured CCL Industries' 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 CCL Industries here for free.

What Does the ROCE Trend For CCL Industries Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 12% and the business has deployed 48% more capital into its operations. 12% is a pretty standard return, and it provides some comfort knowing that CCL Industries has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

Our Take On CCL Industries' ROCE

To sum it up, CCL Industries has simply been reinvesting capital steadily, at those decent rates of return. However, over the last five years, the stock has only delivered a 10% return to shareholders who held over that period. So to determine if CCL Industries is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

One more thing to note, we've identified 1 warning sign with CCL Industries and understanding it should be part of your investment process.

While CCL Industries 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.