Empresa Nacional de Telecomunicaciones (SNSE:ENTEL) Shareholders Will Want The ROCE Trajectory To Continue

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Speaking of which, we noticed some great changes in Empresa Nacional de Telecomunicaciones' (SNSE:ENTEL) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Empresa Nacional de Telecomunicaciones:

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

0.046 = CL$187b ÷ (CL$4.9t - CL$817b) (Based on the trailing twelve months to March 2021).

So, Empresa Nacional de Telecomunicaciones has an ROCE of 4.6%. In absolute terms, that's a low return and it also under-performs the Wireless Telecom industry average of 8.3%.

View our latest analysis for Empresa Nacional de Telecomunicaciones

Above you can see how the current ROCE for Empresa Nacional de Telecomunicaciones 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 report for Empresa Nacional de Telecomunicaciones.

How Are Returns Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 4.6%. The amount of capital employed has increased too, by 56%. So we're very much inspired by what we're seeing at Empresa Nacional de Telecomunicaciones thanks to its ability to profitably reinvest capital.

Our Take On Empresa Nacional de Telecomunicaciones' ROCE

To sum it up, Empresa Nacional de Telecomunicaciones has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Given the stock has declined 32% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing: We've identified 4 warning signs with Empresa Nacional de Telecomunicaciones (at least 1 which is a bit unpleasant) , and understanding these would certainly be useful.

While Empresa Nacional de Telecomunicaciones may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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