Will the Promising Trends At Flexopack Société Anonyme Commercial and Industrial Plastics (ATH:FLEXO) Continue?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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 Flexopack Société Anonyme Commercial and Industrial Plastics (ATH:FLEXO) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

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 Flexopack Société Anonyme Commercial and Industrial Plastics is:

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

0.13 = €13m ÷ (€125m - €28m) (Based on the trailing twelve months to June 2020).

Therefore, Flexopack Société Anonyme Commercial and Industrial Plastics has an ROCE of 13%. That's a relatively normal return on capital, and it's around the 12% generated by the Packaging industry.

See our latest analysis for Flexopack Société Anonyme Commercial and Industrial Plastics

Historical performance is a great place to start when researching a stock so above you can see the gauge for Flexopack Société Anonyme Commercial and Industrial Plastics' ROCE against it's prior returns. If you'd like to look at how Flexopack Société Anonyme Commercial and Industrial Plastics has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Flexopack Société Anonyme Commercial and Industrial Plastics' ROCE Trending?

The trends we've noticed at Flexopack Société Anonyme Commercial and Industrial Plastics are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 13%. 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 70%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

To sum it up, Flexopack Société Anonyme Commercial and Industrial Plastics has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 228% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Flexopack Société Anonyme Commercial and Industrial Plastics can keep these trends up, it could have a bright future ahead.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.

While Flexopack Société Anonyme Commercial and Industrial Plastics 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. 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.
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