If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. That's why when we briefly looked at CCL Industries' (TSE:CCL.B) ROCE trend, we were pretty happy with what we saw.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on CCL Industries is:

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

0.12 = CA$1.0b ÷ (CA$9.6b - CA$1.5b) (Based on the trailing twelve months to June 2024).

Therefore, CCL Industries has an ROCE of 12%. That's a pretty standard return and it's in line with the industry average of 12%.

See our latest analysis for CCL Industries

In the above chart we have measured CCL Industries' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for CCL Industries .

What Can We Tell From CCL Industries' ROCE Trend?

While the current returns on capital are decent, they haven't changed much. The company has employed 38% more capital in the last five years, and the returns on that capital have remained stable at 12%. Since 12% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line

In the end, CCL Industries has proven its ability to adequately reinvest capital at good rates of return. And given the stock has only risen 39% over the last five years, we'd suspect the market is beginning to recognize these trends. So to determine if CCL Industries is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

If you want to continue researching CCL Industries, you might be interested to know about the 1 warning sign that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.