In This Article:
What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Mitchells & Butlers (LON:MAB), we don't think it's current trends fit the mold of a multi-bagger.
Return On Capital Employed (ROCE): What Is It?
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 Mitchells & Butlers is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.068 = UK£310m ÷ (UK£5.2b - UK£662m) (Based on the trailing twelve months to September 2024).
Therefore, Mitchells & Butlers has an ROCE of 6.8%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 8.6%.
See our latest analysis for Mitchells & Butlers
Above you can see how the current ROCE for Mitchells & Butlers compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Mitchells & Butlers .
The Trend Of ROCE
Things have been pretty stable at Mitchells & Butlers, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Mitchells & Butlers doesn't end up being a multi-bagger in a few years time.
What We Can Learn From Mitchells & Butlers' ROCE
In a nutshell, Mitchells & Butlers has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has declined 25% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.
If you want to continue researching Mitchells & Butlers, you might be interested to know about the 1 warning sign that our analysis has discovered.