Huhtamaki India (NSE:HUHTAMAKI) Hasn't Managed To Accelerate Its Returns

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. However, after investigating Huhtamaki India (NSE:HUHTAMAKI), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What is it?

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. To calculate this metric for Huhtamaki India, this is the formula:

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

0.14 = ₹1.4b ÷ (₹16b - ₹6.3b) (Based on the trailing twelve months to December 2020).

Therefore, Huhtamaki India has an ROCE of 14%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Packaging industry average of 13%.

Check out our latest analysis for Huhtamaki India

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Huhtamaki India has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Huhtamaki India's ROCE Trend?

Over the past five years, Huhtamaki India'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. With that in mind, unless investment picks up again in the future, we wouldn't expect Huhtamaki India to be a multi-bagger going forward.

Our Take On Huhtamaki India's ROCE

In summary, Huhtamaki India isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And investors may be recognizing these trends since the stock has only returned a total of 27% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you'd like to know about the risks facing Huhtamaki India, we've discovered 2 warning signs that you should be aware of.

While Huhtamaki India 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.

If you decide to trade Huhtamaki India, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.