If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Mitchells & Butlers (LON:MAB) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
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 Mitchells & Butlers is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.072 = UK£331m ÷ (UK£5.3b - UK£695m) (Based on the trailing twelve months to April 2025).
Thus, Mitchells & Butlers has an ROCE of 7.2%. Even though it's in line with the industry average of 7.2%, it's still a low return by itself.
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'd like, you can check out the forecasts from the analysts covering Mitchells & Butlers for free.
What The Trend Of ROCE Can Tell Us
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.
Our Take On Mitchells & Butlers' ROCE
In summary, Mitchells & Butlers isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And with the stock having returned a mere 20% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.
If you're still interested in Mitchells & Butlers it's worth checking out our FREE intrinsic value approximation for MAB to see if it's trading at an attractive price in other respects.
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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Discover if Mitchells & Butlers might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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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.