Graphic Packaging Holding's (NYSE:GPK) Returns On Capital Are Heading Higher

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Graphic Packaging Holding (NYSE:GPK) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Graphic Packaging Holding is:

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

0.15 = US$1.3b ÷ (US$11b - US$2.6b) (Based on the trailing twelve months to December 2023).

Thus, Graphic Packaging Holding has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Packaging industry average of 11% it's much better.

View our latest analysis for Graphic Packaging Holding

Above you can see how the current ROCE for Graphic Packaging Holding 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 analyst report for Graphic Packaging Holding .

So How Is Graphic Packaging Holding's ROCE Trending?

Graphic Packaging Holding is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 15%. Basically the business is earning more per dollar of capital invested and in addition to that, 46% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Graphic Packaging Holding's ROCE

All in all, it's terrific to see that Graphic Packaging Holding is reaping the rewards from prior investments and is growing its capital base. And a remarkable 143% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

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

While Graphic Packaging Holding 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. 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.