We're Watching These Trends At Greatview Aseptic Packaging (HKG:468)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Greatview Aseptic Packaging (HKG:468) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Greatview Aseptic Packaging:

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

0.16 = CN¥407m ÷ (CN¥3.7b - CN¥1.1b) (Based on the trailing twelve months to June 2020).

So, Greatview Aseptic Packaging has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Packaging industry average of 11% it's much better.

See our latest analysis for Greatview Aseptic Packaging

Above you can see how the current ROCE for Greatview Aseptic Packaging compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Greatview Aseptic Packaging.

How Are Returns Trending?

Over the past five years, Greatview Aseptic Packaging's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Greatview Aseptic Packaging in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. That being the case, it makes sense that Greatview Aseptic Packaging has been paying out 88% of its earnings to its shareholders. These mature businesses typically have reliable earnings and not many places to reinvest them, so the next best option is to put the earnings into shareholders pockets.

What We Can Learn From Greatview Aseptic Packaging's ROCE

In a nutshell, Greatview Aseptic Packaging has been trudging along with the same returns from the same amount of capital over the last five years. Although the market must be expecting these trends to improve because the stock has gained 73% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you want to continue researching Greatview Aseptic Packaging, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Greatview Aseptic Packaging 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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