Corticeira Amorim S.G.P.S (ELI:COR) Might Be Having Difficulty Using Its Capital Effectively

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. However, after briefly looking over the numbers, we don't think Corticeira Amorim S.G.P.S (ELI:COR) 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)?

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. To calculate this metric for Corticeira Amorim S.G.P.S, this is the formula:

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

0.12 = €104m ÷ (€1.2b - €331m) (Based on the trailing twelve months to March 2022).

So, Corticeira Amorim S.G.P.S has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Packaging industry average of 9.0% it's much better.

Check out our latest analysis for Corticeira Amorim S.G.P.S

Above you can see how the current ROCE for Corticeira Amorim S.G.P.S 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 Corticeira Amorim S.G.P.S.

What Can We Tell From Corticeira Amorim S.G.P.S' ROCE Trend?

When we looked at the ROCE trend at Corticeira Amorim S.G.P.S, we didn't gain much confidence. Around five years ago the returns on capital were 19%, but since then they've fallen to 12%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

In Conclusion...

In summary, despite lower returns in the short term, we're encouraged to see that Corticeira Amorim S.G.P.S is reinvesting for growth and has higher sales as a result. However, despite the promising trends, the stock has fallen 10% over the last five years, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

If you'd like to know about the risks facing Corticeira Amorim S.G.P.S, we've discovered 1 warning sign that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.