We Like These Underlying Return On Capital Trends At Mattel (NASDAQ:MAT)

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Mattel's (NASDAQ:MAT) returns on capital, so let's have a 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. Analysts use this formula to calculate it for Mattel:

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

0.14 = US$734m ÷ (US$6.5b - US$1.3b) (Based on the trailing twelve months to December 2024).

So, Mattel has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Leisure industry average of 11% it's much better.

Check out our latest analysis for Mattel

In the above chart we have measured Mattel's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Mattel .

The Trend Of ROCE

We like the trends that we're seeing from Mattel. The data shows that returns on capital have increased substantially over the last five years to 14%. The amount of capital employed has increased too, by 29%. So we're very much inspired by what we're seeing at Mattel thanks to its ability to profitably reinvest capital.

The Bottom Line

In summary, it's great to see that Mattel can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 179% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a separate note, we've found 1 warning sign for Mattel you'll probably want to know about.

While Mattel 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.