Elisa Oyj (HEL:ELISA) Hasn't Managed To Accelerate Its Returns

By
Simply Wall St
Published
May 15, 2022
HLSE:ELISA
Source: Shutterstock

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at Elisa Oyj's (HEL:ELISA) ROCE trend, we were pretty happy with what we saw.

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. The formula for this calculation on Elisa Oyj is:

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

0.17 = €438m ÷ (€3.2b - €607m) (Based on the trailing twelve months to March 2022).

Therefore, Elisa Oyj has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Telecom industry average of 9.4% it's much better.

See our latest analysis for Elisa Oyj

roce
HLSE:ELISA Return on Capital Employed May 15th 2022

Above you can see how the current ROCE for Elisa Oyj 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 Elisa Oyj here for free.

So How Is Elisa Oyj's ROCE Trending?

While the returns on capital are good, they haven't moved much. The company has employed 22% more capital in the last five years, and the returns on that capital have remained stable at 17%. 17% is a pretty standard return, and it provides some comfort knowing that Elisa Oyj has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

What We Can Learn From Elisa Oyj's ROCE

To sum it up, Elisa Oyj has simply been reinvesting capital steadily, at those decent rates of return. And the stock has followed suit returning a meaningful 92% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

On a final note, we found 2 warning signs for Elisa Oyj (1 doesn't sit too well with us) 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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