Richards Packaging Income Fund (TSE:RPI.UN) Is Reinvesting To Multiply In Value

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. So, when we ran our eye over Richards Packaging Income Fund's (TSE:RPI.UN) trend of ROCE, we really liked what we saw.

What Is 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 Richards Packaging Income Fund is:

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

0.24 = CA$64m ÷ (CA$359m - CA$91m) (Based on the trailing twelve months to September 2022).

Therefore, Richards Packaging Income Fund has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Packaging industry average of 13%.

See our latest analysis for Richards Packaging Income Fund

In the above chart we have measured Richards Packaging Income Fund's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Richards Packaging Income Fund.

How Are Returns Trending?

Richards Packaging Income Fund deserves to be commended in regards to it's returns. Over the past five years, ROCE has remained relatively flat at around 24% and the business has deployed 103% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Richards Packaging Income Fund can keep this up, we'd be very optimistic about its future.

In Conclusion...

Richards Packaging Income Fund has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you'd like to know about the risks facing Richards Packaging Income Fund, we've discovered 3 warning signs that you should be aware of.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here