Returns On Capital Are Showing Encouraging Signs At Hellenic Telecommunications Organization (ATH:HTO)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing 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.

What is 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)

0.16 = €619m ÷ (€5.9b - €2.1b) (Based on the trailing twelve months to December 2020).

Thus, Hellenic Telecommunications Organization has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Telecom industry average of 9.2% it's much better.

View 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 in regards to ROCE growth. The data shows that returns on capital have increased by 83% over the trailing five years. The company is now earning €0.2 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 24% less than it was five years ago, which can be indicative of a business that's improving its efficiency. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

Our Take On 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. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 78% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a separate note, we've found 4 warning signs for Hellenic Telecommunications Organization you'll probably want to know about.

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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