Returns On Capital At Mitchells & Butlers (LON:MAB) Have Hit The Brakes

What are the early trends we should look for to identify a stock that could 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 briefly looking over the numbers, we don't think Mitchells & Butlers (LON:MAB) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Mitchells & Butlers:

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

0.07 = UK£288m ÷ (UK£4.8b - UK£674m) (Based on the trailing twelve months to April 2024).

Therefore, Mitchells & Butlers has an ROCE of 7.0%. On its own, that's a low figure but it's around the 7.7% average generated by the Hospitality industry.

See our latest analysis for Mitchells & Butlers

In the above chart we have measured Mitchells & Butlers' 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 Mitchells & Butlers for free.

How Are Returns Trending?

Over the past five years, Mitchells & Butlers' ROCE and capital employed have both remained mostly flat. 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.

The Key Takeaway

We can conclude that in regards to Mitchells & Butlers' returns on capital employed and the trends, there isn't much change to report on. Since the stock has declined 13% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Mitchells & Butlers has the makings of a multi-bagger.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Mitchells & Butlers (of which 1 makes us a bit uncomfortable!) that you should know about.

While Mitchells & Butlers 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.