Marks and Spencer Group (LON:MKS) Is Looking To Continue Growing Its Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Marks and Spencer Group (LON:MKS) and its trend of ROCE, we really liked what we saw.

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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 Marks and Spencer Group is:

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

0.18 = UK£1.1b ÷ (UK£8.8b - UK£2.8b) (Based on the trailing twelve months to March 2025).

Thus, Marks and Spencer Group has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 13% generated by the Consumer Retailing industry.

See our latest analysis for Marks and Spencer Group

Above you can see how the current ROCE for Marks and Spencer Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Marks and Spencer Group .

What Does the ROCE Trend For Marks and Spencer Group Tell Us?

We're pretty happy with how the ROCE has been trending at Marks and Spencer Group. The figures show that over the last five years, returns on capital have grown by 128%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Speaking of capital employed, the company is actually utilizing 27% less than it was five years ago, which can be indicative of a business that's improving its efficiency. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 31% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

What We Can Learn From Marks and Spencer Group's ROCE

From what we've seen above, Marks and Spencer Group has managed to increase it's returns on capital all the while reducing it's capital base. Since the stock has returned a staggering 241% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Marks and Spencer Group does have some risks though, and we've spotted 2 warning signs for Marks and Spencer Group that you might be interested in.

While Marks and Spencer Group 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.