Here’s What’s Happening With Returns At Hellenic Telecommunications Organization (ATH:HTO)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Hellenic Telecommunications Organization (ATH:HTO) so let's look a bit deeper.

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 Hellenic Telecommunications Organization is:

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

0.17 = €639m ÷ (€5.8b - €2.0b) (Based on the trailing twelve months to September 2020).

So, Hellenic Telecommunications Organization has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 8.1% generated by the Telecom industry.

See our latest analysis for Hellenic Telecommunications Organization

In the above chart we have measured Hellenic Telecommunications Organization's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

Hellenic Telecommunications Organization has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 66% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line

In summary, we're delighted to see that Hellenic Telecommunications Organization has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And with a respectable 83% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Hellenic Telecommunications Organization can keep these trends up, it could have a bright future ahead.

Hellenic Telecommunications Organization does have some risks though, and we've spotted 3 warning signs for Hellenic Telecommunications Organization that you might be interested in.

While Hellenic Telecommunications Organization 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.

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