SIG Combibloc Group (VTX:SIGN) Is Looking To Continue Growing Its Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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, we've noticed some promising trends at SIG Combibloc Group (VTX:SIGN) 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 SIG Combibloc Group:

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

0.055 = €215m ÷ (€4.6b - €687m) (Based on the trailing twelve months to December 2020).

Therefore, SIG Combibloc Group has an ROCE of 5.5%. Ultimately, that's a low return and it under-performs the Packaging industry average of 11%.

View our latest analysis for SIG Combibloc Group

Above you can see how the current ROCE for SIG Combibloc Group 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 report on analyst forecasts for the company.

How Are Returns Trending?

SIG Combibloc Group's ROCE growth is quite impressive. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 38% over the last four years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. 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 SIG Combibloc Group's ROCE

To bring it all together, SIG Combibloc Group has done well to increase the returns it's generating from its capital employed. And with a respectable 68% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a separate note, we've found 5 warning signs for SIG Combibloc Group you'll probably want to know about.

While SIG Combibloc Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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