Returns On Capital At Mulberry Group (LON:MUL) Have Hit The Brakes

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Although, when we looked at Mulberry Group (LON:MUL), it didn't seem to tick all of these boxes.

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 Mulberry Group, this is the formula:

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

0.10 = UK£9.4m ÷ (UK£130m - UK£38m) (Based on the trailing twelve months to October 2022).

Therefore, Mulberry Group has an ROCE of 10%. By itself that's a normal return on capital and it's in line with the industry's average returns of 10%.

View our latest analysis for Mulberry Group

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Mulberry Group has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Mulberry Group Tell Us?

There hasn't been much to report for Mulberry Group's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Mulberry Group to be a multi-bagger going forward.

The Key Takeaway

In summary, Mulberry Group isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Moreover, since the stock has crumbled 73% over the last five years, it appears investors are expecting the worst. 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.

Mulberry Group does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those are a bit unpleasant...

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

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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.