Returns On Capital Are Showing Encouraging Signs At Infrastrutture Wireless Italiane (BIT:INW)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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 Infrastrutture Wireless Italiane's (BIT:INW) returns on capital, so let's have a look.

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Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Infrastrutture Wireless Italiane:

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

0.065 = €565m ÷ (€9.4b - €725m) (Based on the trailing twelve months to March 2025).

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 10.0%.

Check out our latest analysis for Infrastrutture Wireless Italiane

Above you can see how the current ROCE for Infrastrutture Wireless Italiane compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Infrastrutture Wireless Italiane for free.

The Trend Of ROCE

Infrastrutture Wireless Italiane is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 121% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line

As discussed above, Infrastrutture Wireless Italiane appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has returned a solid 48% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Infrastrutture Wireless Italiane does have some risks, we noticed 2 warning signs (and 1 which is concerning) we think you should know about.

While Infrastrutture Wireless Italiane 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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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.