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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at United Utilities Group (LON:UU.) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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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. The formula for this calculation on United Utilities Group is:

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

0.041 = UK£636m ÷ (UK£17b - UK£1.1b) (Based on the trailing twelve months to March 2025).

Thus, United Utilities Group has an ROCE of 4.1%.  On its own that's a low return on capital but it's in line with the industry's average returns of 3.6%.

View our latest analysis for United Utilities Group LSE:UU. Return on Capital Employed August 4th 2025

Above you can see how the current ROCE for United Utilities 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 free analyst report for United Utilities Group .

So How Is United Utilities Group's ROCE Trending?

On the surface, the trend of ROCE at United Utilities Group doesn't inspire confidence. To be more specific, ROCE has fallen from 5.9% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line

In summary, despite lower returns in the short term, we're encouraged to see that United Utilities Group is reinvesting for growth and has higher sales as a result. And the stock has followed suit returning a meaningful 58% to shareholders over the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.

Story Continues

One more thing, we've spotted  2 warning signs  facing United Utilities Group that you might find interesting.

For those who like to invest in solid companies, check out this freelist 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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