We Like These Underlying Return On Capital Trends At SIG Combibloc Group (VTX:SIGN)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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 SIG Combibloc Group (VTX:SIGN) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

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 SIG Combibloc Group, this is the formula:

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

0.054 = €237m ÷ (€5.2b - €844m) (Based on the trailing twelve months to June 2021).

Therefore, SIG Combibloc Group has an ROCE of 5.4%. In absolute terms, that's a low return and it also under-performs the Packaging industry average of 9.8%.

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.

So How Is SIG Combibloc Group's ROCE Trending?

SIG Combibloc Group has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last four years, the ROCE has climbed 38% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. 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

To bring it all together, SIG Combibloc Group has done well to increase the returns it's generating from its capital employed. And a remarkable 104% total return over the last three years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if SIG Combibloc Group can keep these trends up, it could have a bright future ahead.

Like most companies, SIG Combibloc Group does come with some risks, and we've found 4 warning signs that you should be aware of.

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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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.