Investors Met With Slowing Returns on Capital At Reynolds Consumer Products (NASDAQ:REYN)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Although, when we looked at Reynolds Consumer Products (NASDAQ:REYN), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

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 Reynolds Consumer Products is:

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

0.12 = US$494m ÷ (US$4.7b - US$468m) (Based on the trailing twelve months to September 2021).

Thus, Reynolds Consumer Products has an ROCE of 12%. In isolation, that's a pretty standard return but against the Household Products industry average of 15%, it's not as good.

Check out our latest analysis for Reynolds Consumer Products

roce

Above you can see how the current ROCE for Reynolds Consumer Products 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.

The Trend Of ROCE

Over the past three years, Reynolds Consumer Products' 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. So don't be surprised if Reynolds Consumer Products doesn't end up being a multi-bagger in a few years time. With fewer investment opportunities, it makes sense that Reynolds Consumer Products has been paying out a decent 47% of its earnings to shareholders. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.

On a side note, Reynolds Consumer Products has done well to reduce current liabilities to 9.9% of total assets over the last three years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Key Takeaway

We can conclude that in regards to Reynolds Consumer Products' returns on capital employed and the trends, there isn't much change to report on. And with the stock having returned a mere 1.4% in the last year to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

One final note, you should learn about the 2 warning signs we've spotted with Reynolds Consumer Products (including 1 which is a bit unpleasant) .

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.