There's Been No Shortage Of Growth Recently For freenet's (ETR:FNTN) Returns On Capital

If you're looking for a multi-bagger, there's a few things to 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at freenet (ETR:FNTN) so let's look a bit deeper.

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

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. The formula for this calculation on freenet is:

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

0.15 = €344m ÷ (€3.2b - €955m) (Based on the trailing twelve months to June 2024).

So, freenet has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Wireless Telecom industry average of 8.8% it's much better.

Check out our latest analysis for freenet

Above you can see how the current ROCE for freenet compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for freenet .

The Trend Of ROCE

You'd find it hard not to be impressed with the ROCE trend at freenet. The figures show that over the last five years, returns on capital have grown by 95%. The company is now earning €0.2 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 38% less capital than it was five years ago. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

The Bottom Line On freenet's ROCE

In the end, freenet has proven it's capital allocation skills are good with those higher returns from less amount of capital. Since the stock has returned a solid 95% to shareholders over the last five years, it's fair to say investors are beginning to recognize 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 separate note, we've found 1 warning sign for freenet you'll probably want to know about.

While freenet 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.