Returns Are Gaining Momentum At Empresa Nacional de Telecomunicaciones (SNSE:ENTEL)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Empresa Nacional de Telecomunicaciones (SNSE:ENTEL) so let's look a bit deeper.

Understanding 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. To calculate this metric for Empresa Nacional de Telecomunicaciones, this is the formula:

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

0.066 = CL$281b ÷ (CL$5.4t - CL$1.2t) (Based on the trailing twelve months to December 2021).

So, Empresa Nacional de Telecomunicaciones has an ROCE of 6.6%. Ultimately, that's a low return and it under-performs the Wireless Telecom industry average of 8.3%.

View our latest analysis for Empresa Nacional de Telecomunicaciones

In the above chart we have measured Empresa Nacional de Telecomunicaciones' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Empresa Nacional de Telecomunicaciones.

So How Is Empresa Nacional de Telecomunicaciones' ROCE Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 6.6%. The amount of capital employed has increased too, by 47%. 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

All in all, it's terrific to see that Empresa Nacional de Telecomunicaciones is reaping the rewards from prior investments and is growing its capital base. Given the stock has declined 46% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you'd like to know about the risks facing Empresa Nacional de Telecomunicaciones, we've discovered 2 warning signs that you should be aware of.

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.

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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.