Investors Shouldn't Overlook Hellenic Telecommunications Organization's (ATH:HTO) Impressive Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. 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.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Hellenic Telecommunications Organization:

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

0.22 = €730m ÷ (€5.0b - €1.8b) (Based on the trailing twelve months to September 2022).

So, Hellenic Telecommunications Organization has an ROCE of 22%. That's a fantastic return and not only that, it outpaces the average of 9.3% earned by companies in a similar industry.

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'd like, you can check out the forecasts from the analysts covering Hellenic Telecommunications Organization here for free.

What Does the ROCE Trend For Hellenic Telecommunications Organization Tell Us?

We're pretty happy with how the ROCE has been trending at Hellenic Telecommunications Organization. The figures show that over the last five years, returns on capital have grown by 140%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Hellenic Telecommunications Organization appears to been achieving more with less, since the business is using 24% less capital to run its operation. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

What We Can Learn From Hellenic Telecommunications Organization's ROCE

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 60% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 1 warning sign facing Hellenic Telecommunications Organization that you might find interesting.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.