Investors Met With Slowing Returns on Capital At Reynolds Consumer Products (NASDAQ:REYN)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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 Reynolds Consumer Products (NASDAQ:REYN) and its ROCE trend, we weren't exactly thrilled.

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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. To calculate this metric for Reynolds Consumer Products, this is the formula:

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

0.12 = US$527m ÷ (US$4.9b - US$559m) (Based on the trailing twelve months to September 2025).

Therefore, Reynolds Consumer Products has an ROCE of 12%. In isolation, that's a pretty standard return but against the Household Products industry average of 19%, it's not as good.

View our latest analysis for Reynolds Consumer Products

In the above chart we have measured Reynolds Consumer Products' 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 Reynolds Consumer Products for free.

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for Reynolds Consumer Products' returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Reynolds Consumer Products in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. With fewer investment opportunities, it makes sense that Reynolds Consumer Products has been paying out a decent 55% of its earnings to shareholders. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.

The Key Takeaway

In summary, Reynolds Consumer Products isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Unsurprisingly then, the total return to shareholders over the last five years has been flat. Therefore based on the analysis done in this article, we don't think Reynolds Consumer Products has the makings of a multi-bagger.

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

While Reynolds Consumer Products may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.