U.S. markets open in 3 hours 30 minutes
  • S&P Futures

    3,417.25
    -34.50 (-1.00%)
     
  • Dow Futures

    27,909.00
    -280.00 (-0.99%)
     
  • Nasdaq Futures

    11,557.50
    -106.00 (-0.91%)
     
  • Russell 2000 Futures

    1,614.20
    -21.40 (-1.31%)
     
  • Crude Oil

    38.74
    -1.11 (-2.79%)
     
  • Gold

    1,903.40
    -1.80 (-0.09%)
     
  • Silver

    24.32
    -0.36 (-1.46%)
     
  • EUR/USD

    1.1813
    -0.0055 (-0.46%)
     
  • 10-Yr Bond

    0.8410
    0.0000 (0.00%)
     
  • Vix

    29.93
    +1.82 (+6.47%)
     
  • GBP/USD

    1.3051
    +0.0013 (+0.10%)
     
  • USD/JPY

    104.8820
    +0.1920 (+0.18%)
     
  • BTC-USD

    13,091.49
    +14.47 (+0.11%)
     
  • CMC Crypto 200

    263.00
    +1.54 (+0.59%)
     
  • FTSE 100

    5,851.56
    -8.72 (-0.15%)
     
  • Nikkei 225

    23,494.34
    -22.25 (-0.09%)
     

Returns On Capital At O-I Glass (NYSE:OI) Paint An Interesting Picture

Simply Wall St
·3 mins read

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at O-I Glass (NYSE:OI) and its ROCE trend, we weren't exactly thrilled.

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. The formula for this calculation on O-I Glass is:

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

0.059 = US$452m ÷ (US$9.6b - US$1.9b) (Based on the trailing twelve months to June 2020).

So, O-I Glass has an ROCE of 5.9%. In absolute terms, that's a low return and it also under-performs the Packaging industry average of 9.4%.

See our latest analysis for O-I Glass

roce
roce

In the above chart we have measured O-I Glass' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering O-I Glass here for free.

So How Is O-I Glass' ROCE Trending?

When we looked at the ROCE trend at O-I Glass, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 5.9% from 10% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On O-I Glass' ROCE

To conclude, we've found that O-I Glass is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 46% in the last five years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

One more thing: We've identified 3 warning signs with O-I Glass (at least 1 which makes us a bit uncomfortable) , and understanding these would certainly be useful.

While O-I Glass isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

This article by Simply Wall St is general in nature. 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.

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