What Can The Trends At HKT Trust and HKT (HKG:6823) Tell Us About Their Returns?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Speaking of which, we noticed some great changes in HKT Trust and HKT's (HKG:6823) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

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. Analysts use this formula to calculate it for HKT Trust and HKT:

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

0.087 = HK$7.4b ÷ (HK$100b - HK$16b) (Based on the trailing twelve months to June 2020).

Therefore, HKT Trust and HKT has an ROCE of 8.7%. On its own that's a low return, but compared to the average of 5.7% generated by the Telecom industry, it's much better.

See our latest analysis for HKT Trust and HKT

In the above chart we have measured HKT Trust and HKT's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering HKT Trust and HKT here for free.

So How Is HKT Trust and HKT's ROCE Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 8.7%. The amount of capital employed has increased too, by 24%. So we're very much inspired by what we're seeing at HKT Trust and HKT thanks to its ability to profitably reinvest capital.

The Bottom Line On HKT Trust and HKT's ROCE

All in all, it's terrific to see that HKT Trust and HKT is reaping the rewards from prior investments and is growing its capital base. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 39% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

One final note, you should learn about the 2 warning signs we've spotted with HKT Trust and HKT (including 1 which makes us a bit uncomfortable) .

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. 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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