Be Wary Of Infrastrutture Wireless Italiane (BIT:INW) And Its Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think Infrastrutture Wireless Italiane (BIT:INW) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

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. To calculate this metric for Infrastrutture Wireless Italiane, this is the formula:

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

0.065 = €561m ÷ (€9.5b - €852m) (Based on the trailing twelve months to December 2024).

Thus, Infrastrutture Wireless Italiane has an ROCE of 6.5%. In absolute terms, that's a low return and it also under-performs the Telecom industry average of 12%.

Check out our latest analysis for Infrastrutture Wireless Italiane

In the above chart we have measured Infrastrutture Wireless Italiane'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 analyst report for Infrastrutture Wireless Italiane .

What Can We Tell From Infrastrutture Wireless Italiane's ROCE Trend?

When we looked at the ROCE trend at Infrastrutture Wireless Italiane, we didn't gain much confidence. To be more specific, ROCE has fallen from 9.6% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Infrastrutture Wireless Italiane's ROCE

Bringing it all together, while we're somewhat encouraged by Infrastrutture Wireless Italiane's reinvestment in its own business, we're aware that returns are shrinking. And with the stock having returned a mere 8.6% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you'd like to know more about Infrastrutture Wireless Italiane, we've spotted 2 warning signs, and 1 of them shouldn't be ignored.

While Infrastrutture Wireless Italiane isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.