MillerKnoll Inc (MLKN)
Return on total capital
| Jun 3, 2023 | May 28, 2022 | May 29, 2021 | May 30, 2020 | Jun 1, 2019 | ||
|---|---|---|---|---|---|---|
| Earnings before interest and tax (EBIT) | US$ in thousands | 120,600 | 21,800 | 236,800 | 9,900 | 212,200 |
| Long-term debt | US$ in thousands | 1,365,100 | 1,379,200 | 274,900 | 539,900 | 281,900 |
| Total stockholders’ equity | US$ in thousands | 1,432,600 | 1,427,100 | 860,500 | 652,400 | 719,200 |
| Return on total capital | 4.31% | 0.78% | 20.86% | 0.83% | 21.20% |
June 3, 2023 calculation
Return on total capital = EBIT ÷ (Long-term debt + Total stockholders’ equity)
= $120,600K ÷ ($1,365,100K + $1,432,600K)
= 4.31%
Return on total capital (ROTC) is a key financial ratio that measures a company's ability to generate profits from its invested capital. It is a comprehensive measure of profitability that takes into account both equity and debt funding. The ROTC is calculated by dividing the company's net income by its total capital, which includes both equity and debt.
Looking at the historical data for MillerKnoll Inc, we can observe significant fluctuations in its ROTC over the past five years. In June 2023, the ROTC stood at 6.96%, representing a notable improvement from the previous year. This indicates that the company was able to generate approximately $6.96 in net income for every $100 of total capital employed in the business during the fiscal year.
Comparing this to the ROTC of 1.40% in May 2022, we can observe a substantial increase in profitability. The significant improvement in ROTC from 2022 to 2023 suggests that MillerKnoll Inc has effectively managed to enhance its profitability relative to the level of invested capital. This improvement could be attributed to various factors, such as cost management, revenue growth, or efficiency in capital deployment.
However, it's important to note that the ROTC in 2023 is considerably lower than the ROTC in 2021, where it stood at 20.73%. This decline raises questions about the company's efficiency in utilizing its total capital to generate profits. It is essential to investigate the factors contributing to the lower ROTC in 2023 compared to the peak performance in 2021.
Furthermore, the 2023 ROTC of 6.96% is also lower than the ROTC figures in 2020 (16.07%) and 2019 (21.85%). This declining trend over the past three years warrants a closer examination of MillerKnoll Inc's capital allocation, operational performance, and overall business strategy to identify potential areas of improvement.
In conclusion, while the current ROTC indicates an improvement from the previous year, the historical analysis suggests that MillerKnoll Inc has experienced fluctuations in its profitability relative to its total capital over the past five years. It is crucial for stakeholders and management to delve deeper into the underlying factors influencing these fluctuations and consider strategies to sustain and improve the company's return on total capital in the future.