Returns On Capital At CITIC Telecom International Holdings (HKG:1883) Have Stalled

What trends should we look for it we want to identify stocks that can 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at CITIC Telecom International Holdings (HKG:1883), it didn't seem to tick all of these boxes.

Understanding 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 CITIC Telecom International Holdings:

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

0.099 = HK$1.6b ÷ (HK$18b - HK$2.4b) (Based on the trailing twelve months to June 2021).

Therefore, CITIC Telecom International Holdings has an ROCE of 9.9%. On its own that's a low return, but compared to the average of 5.9% generated by the Telecom industry, it's much better.

See our latest analysis for CITIC Telecom International Holdings

In the above chart we have measured CITIC Telecom International Holdings' 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.

What Can We Tell From CITIC Telecom International Holdings' ROCE Trend?

Things have been pretty stable at CITIC Telecom International Holdings, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect CITIC Telecom International Holdings to be a multi-bagger going forward. That being the case, it makes sense that CITIC Telecom International Holdings has been paying out 74% of its earnings to its shareholders. Most shareholders probably know this and own the stock for its dividend.

What We Can Learn From CITIC Telecom International Holdings' ROCE

We can conclude that in regards to CITIC Telecom International Holdings' returns on capital employed and the trends, there isn't much change to report on. And investors may be recognizing these trends since the stock has only returned a total of 35% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

CITIC Telecom International Holdings does have some risks though, and we've spotted 1 warning sign for CITIC Telecom International Holdings that you might be interested in.

While CITIC Telecom International Holdings 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.

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.

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