Hellenic Telecommunications Organization (ATH:HTO) Knows How To Allocate Capital Effectively

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. And in light of that, the trends we're seeing at Hellenic Telecommunications Organization's (ATH:HTO) look very promising so lets take a look.

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 Hellenic Telecommunications Organization is:

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

0.23 = €709m ÷ (€5.3b - €2.2b) (Based on the trailing twelve months to June 2023).

Therefore, Hellenic Telecommunications Organization has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Telecom industry average of 9.2%.

View our latest analysis for Hellenic Telecommunications Organization

Above you can see how the current ROCE for Hellenic Telecommunications Organization 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 report on analyst forecasts for the company.

What Can We Tell From Hellenic Telecommunications Organization's ROCE Trend?

You'd find it hard not to be impressed with the ROCE trend at Hellenic Telecommunications Organization. The data shows that returns on capital have increased by 107% over the trailing five years. The company is now earning €0.2 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 29% 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.

Another thing to note, Hellenic Telecommunications Organization has a high ratio of current liabilities to total assets of 41%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

In summary, it's great to see that Hellenic Telecommunications Organization has been able to turn things around and earn higher returns on lower amounts of capital. Since the stock has returned a solid 64% 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.

If you want to continue researching Hellenic Telecommunications Organization, you might be interested to know about the 1 warning sign that our analysis has discovered.

Hellenic Telecommunications Organization is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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.