The Return Trends At Deutsche Telekom (ETR:DTE) Look Promising

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 Deutsche Telekom (ETR:DTE) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Deutsche Telekom, this is the formula:

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

0.095 = €24b ÷ (€289b - €35b) (Based on the trailing twelve months to September 2024).

So, Deutsche Telekom has an ROCE of 9.5%. In absolute terms, that's a low return but it's around the Telecom industry average of 10%.

See our latest analysis for Deutsche Telekom

In the above chart we have measured Deutsche Telekom's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Deutsche Telekom for free.

The Trend Of ROCE

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 9.5%. The amount of capital employed has increased too, by 82%. So we're very much inspired by what we're seeing at Deutsche Telekom thanks to its ability to profitably reinvest capital.

In Conclusion...

All in all, it's terrific to see that Deutsche Telekom is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 143% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a final note, we've found 1 warning sign for Deutsche Telekom that we think you should be aware of.

For those who like to invest in solid companies, check out this free list 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.