Yahoo Finance Whitbread (LON:WTB) Is Looking To Continue Growing Its Returns On Capital
To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Whitbread (LON:WTB) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Whitbread:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.077 = UK£666m ÷ (UK£9.5b - UK£870m) (Based on the trailing twelve months to February 2024).
Thus, Whitbread has an ROCE of 7.7%. In absolute terms, that's a low return but it's around the Hospitality industry average of 7.5%.
View our latest analysis for Whitbread
Above you can see how the current ROCE for Whitbread compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Whitbread .
How Are Returns Trending?
Whitbread has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 64% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
The Key Takeaway
In summary, we're delighted to see that Whitbread has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has fallen 19% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.
Like most companies, Whitbread does come with some risks, and we've found 1 warning sign that you should be aware of.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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.
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