The Returns At Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság (BUSE:MTELEKOM) Provide Us With Signs Of What's To Come

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság (BUSE:MTELEKOM) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság:

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

0.081 = Ft76b ÷ (Ft1.3t - Ft366b) (Based on the trailing twelve months to September 2020).

Therefore, Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság has an ROCE of 8.1%. Even though it's in line with the industry average of 8.0%, it's still a low return by itself.

View our latest analysis for Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság

In the above chart we have measured Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság'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 Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság here for free.

What The Trend Of ROCE Can Tell Us

Over the past five years, Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság to be a multi-bagger going forward. On top of that you'll notice that Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság has been paying out a large portion (74%) of earnings in the form of dividends to shareholders. Most shareholders probably know this and own the stock for its dividend.

The Bottom Line

In a nutshell, Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság has been trudging along with the same returns from the same amount of capital over the last five years. And investors may be recognizing these trends since the stock has only returned a total of 27% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

On a final note, we've found 2 warning signs for Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság that we think you should be aware of.

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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