Canada Markets open in 8 mins
  • S&P/TSX

    19,991.88
    +105.98 (+0.53%)
     
  • S&P 500

    4,207.27
    -2.97 (-0.07%)
     
  • DOW

    33,336.67
    +27.17 (+0.08%)
     
  • CAD/USD

    0.7821
    -0.0015 (-0.1963%)
     
  • CRUDE OIL

    93.02
    -1.32 (-1.40%)
     
  • BTC-CAD

    30,473.14
    -1,262.79 (-3.98%)
     
  • CMC Crypto 200

    566.31
    -8.44 (-1.47%)
     
  • GOLD FUTURES

    1,808.30
    +1.10 (+0.06%)
     
  • RUSSELL 2000

    1,975.26
    +6.01 (+0.31%)
     
  • 10-Yr Bond

    2.8490
    -0.0390 (-1.35%)
     
  • NASDAQ futures

    13,397.50
    +86.25 (+0.65%)
     
  • VOLATILITY

    19.90
    +0.16 (+0.81%)
     
  • FTSE

    7,493.37
    +27.46 (+0.37%)
     
  • NIKKEI 225

    28,546.98
    +727.65 (+2.62%)
     
  • CAD/EUR

    0.7610
    +0.0022 (+0.29%)
     

Packaging Corporation of America (NYSE:PKG) Is Investing Its Capital With Increasing Efficiency

  • Oops!
    Something went wrong.
    Please try again later.
·2 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

There are a few key trends to look for if we want to identify the next 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Packaging Corporation of America's (NYSE:PKG) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

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 Packaging Corporation of America:

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

0.20 = US$1.4b ÷ (US$8.1b - US$968m) (Based on the trailing twelve months to March 2022).

Thus, Packaging Corporation of America has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Packaging industry average of 9.0%.

See our latest analysis for Packaging Corporation of America

roce
roce

Above you can see how the current ROCE for Packaging Corporation of America compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Packaging Corporation of America here for free.

What The Trend Of ROCE Can Tell Us

Packaging Corporation of America is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 20%. The amount of capital employed has increased too, by 41%. So we're very much inspired by what we're seeing at Packaging Corporation of America thanks to its ability to profitably reinvest capital.

In Conclusion...

To sum it up, Packaging Corporation of America has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a solid 43% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 3 warning signs facing Packaging Corporation of America that you might find interesting.

Packaging Corporation of America is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting