What We Make Of Empresa Nacional de Telecomunicaciones' (SNSE:ENTEL) Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. 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 that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Empresa Nacional de Telecomunicaciones is:

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

0.042 = CL$171b ÷ (CL$4.9t - CL$814b) (Based on the trailing twelve months to December 2020).

Thus, Empresa Nacional de Telecomunicaciones has an ROCE of 4.2%. Ultimately, that's a low return and it under-performs the Wireless Telecom industry average of 8.4%.

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, you can check out the forecasts from the analysts covering Empresa Nacional de Telecomunicaciones here for free.

How Are Returns 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 numbers show that in the last five years, the returns generated on capital employed have grown considerably to 4.2%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 52%. So we're very much inspired by what we're seeing at Empresa Nacional de Telecomunicaciones thanks to its ability to profitably reinvest capital.

The Key Takeaway

In summary, it's great to see that Empresa Nacional de Telecomunicaciones can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Astute investors may have an opportunity here because the stock has declined 13% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

Empresa Nacional de Telecomunicaciones does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those is potentially serious...

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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