We Like These Underlying Return On Capital Trends At Graphic Packaging Holding (NYSE:GPK)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. So on that note, Graphic Packaging Holding (NYSE:GPK) looks quite promising in regards to its trends of return on capital.

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. The formula for this calculation on Graphic Packaging Holding is:

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

0.13 = US$1.1b ÷ (US$10b - US$1.9b) (Based on the trailing twelve months to December 2022).

Therefore, Graphic Packaging Holding has an ROCE of 13%. That's a relatively normal return on capital, and it's around the 11% generated by the Packaging industry.

See 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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

SWOT Analysis 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 13%. Basically the business is earning more per dollar of capital invested and in addition to that, 109% more capital is being employed now too. So we're very much inspired by what we're seeing at Graphic Packaging Holding thanks to its ability to profitably reinvest capital.

The Key Takeaway

To sum it up, Graphic Packaging Holding has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 71% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Graphic Packaging Holding can keep these trends up, it could have a bright future ahead.

Like most companies, Graphic Packaging Holding does come with some risks, and we've found 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.