Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in O-I Glass' (NYSE:OI) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for O-I Glass, this is the formula:

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

0.10 = US$712m ÷ (US$9.4b - US$2.6b) (Based on the trailing twelve months to March 2024).

So, O-I Glass has an ROCE of 10%. That's a relatively normal return on capital, and it's around the 11% generated by the Packaging industry.

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're interested, you can view the analysts predictions in our free analyst report for O-I Glass .

What The Trend Of ROCE Can Tell Us

O-I Glass' ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 36% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On O-I Glass' ROCE

To bring it all together, O-I Glass has done well to increase the returns it's generating from its capital employed. Astute investors may have an opportunity here because the stock has declined 33% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you want to continue researching O-I Glass, 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.

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