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ManpowerGroup (NYSE:MAN) Will Be Hoping To Turn Its Returns On Capital Around

Simply Wall St·12/01/2024 12:41:55
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To avoid investing in a business that's in decline, there's a few financial metrics that can provide early indications of aging. When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. This indicates the company is producing less profit from its investments and its total assets are decreasing. On that note, looking into ManpowerGroup (NYSE:MAN), we weren't too upbeat about how things were going.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on ManpowerGroup is:

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

0.096 = US$381m ÷ (US$8.5b - US$4.5b) (Based on the trailing twelve months to September 2024).

Therefore, ManpowerGroup has an ROCE of 9.6%. In absolute terms, that's a low return and it also under-performs the Professional Services industry average of 15%.

View our latest analysis for ManpowerGroup

roce
NYSE:MAN Return on Capital Employed December 1st 2024

Above you can see how the current ROCE for ManpowerGroup 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 ManpowerGroup for free.

So How Is ManpowerGroup's ROCE Trending?

There is reason to be cautious about ManpowerGroup, given the returns are trending downwards. To be more specific, the ROCE was 16% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on ManpowerGroup becoming one if things continue as they have.

On a separate but related note, it's important to know that ManpowerGroup has a current liabilities to total assets ratio of 53%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On ManpowerGroup's ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. It should come as no surprise then that the stock has fallen 21% over the last five years, so it looks like investors are recognizing these changes. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

On a final note, we found 3 warning signs for ManpowerGroup (1 is a bit unpleasant) you should be aware of.

While ManpowerGroup isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.