MillerKnoll's (NASDAQ:MLKN) Returns On Capital Not Reflecting Well On The Business

Simply Wall St
·3 min read

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at MillerKnoll (NASDAQ:MLKN), it didn't seem to tick all of these boxes.

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 MillerKnoll is:

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

0.071 = US$260m ÷ (US$4.4b - US$733m) (Based on the trailing twelve months to March 2023).

Thus, MillerKnoll has an ROCE of 7.1%. In absolute terms, that's a low return but it's around the Commercial Services industry average of 8.5%.

Check out our latest analysis for MillerKnoll

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In the above chart we have measured MillerKnoll's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is MillerKnoll's ROCE Trending?

When we looked at the ROCE trend at MillerKnoll, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 7.1% from 19% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From MillerKnoll's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for MillerKnoll. However, despite the promising trends, the stock has fallen 48% over the last five years, so there might be an opportunity here for astute investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for MillerKnoll (of which 1 is a bit unpleasant!) that you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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