Will The ROCE Trend At General Packer (TYO:6267) Continue?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, General Packer (TYO:6267) looks quite promising in regards to its trends of return on capital.

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. Analysts use this formula to calculate it for General Packer:

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

0.16 = JP¥875m ÷ (JP¥8.8b - JP¥3.4b) (Based on the trailing twelve months to October 2020).

So, General Packer has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 6.8% generated by the Machinery industry.

Check out our latest analysis for General Packer

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

What Does the ROCE Trend For General Packer Tell Us?

General Packer's ROCE growth is quite impressive. The figures show that over the last three years, ROCE has grown 163% whilst employing roughly the same amount of capital. 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. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line

To bring it all together, General Packer has done well to increase the returns it's generating from its capital employed. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 46% return over the last five years. In light of that, we think it's worth looking further into this stock because if General Packer can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 1 warning sign for General Packer you'll probably want to know about.

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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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