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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at MTY Food Group (TSE:MTY) and its ROCE trend, we weren't exactly thrilled.

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 MTY Food Group, this is the formula:

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

0.072 = CA$160m ÷ (CA$2.7b - CA$454m) (Based on the trailing twelve months to May 2023).

So, MTY Food Group has an ROCE of 7.2%.  Ultimately, that's a low return and it under-performs the Hospitality industry average of 10%.

Check out our latest analysis for MTY Food Group  roce

Above you can see how the current ROCE for MTY Food 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 freereport for MTY Food Group.

The Trend Of ROCE

In terms of MTY Food Group's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 7.2% for the last five years, and the capital employed within the business has risen 125% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line

Long story short, while MTY Food Group has been reinvesting its capital, the returns that it's generating haven't increased. And with the stock having returned a mere 1.7% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.



On a final note, we've found  3 warning signs for MTY Food Group that we think you should be aware of.

While MTY Food Group isn't earning the highest return, check out this freelist 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.