A Look Into Eurotel's (WSE:ETL) Impressive Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. With that in mind, the ROCE of Eurotel (WSE:ETL) looks attractive right now, so lets see what the trend of returns can tell us.

Understanding 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 Eurotel:

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

0.30 = zł29m ÷ (zł143m - zł49m) (Based on the trailing twelve months to June 2023).

Therefore, Eurotel has an ROCE of 30%. In absolute terms that's a great return and it's even better than the Electronic industry average of 16%.

See our latest analysis for Eurotel

Historical performance is a great place to start when researching a stock so above you can see the gauge for Eurotel's ROCE against it's prior returns. If you're interested in investigating Eurotel's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Eurotel Tell Us?

In terms of Eurotel's history of ROCE, it's quite impressive. The company has consistently earned 30% for the last five years, and the capital employed within the business has risen 79% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Eurotel can keep this up, we'd be very optimistic about its future.

On a side note, Eurotel has done well to reduce current liabilities to 34% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

In Conclusion...

In summary, we're delighted to see that Eurotel has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And the stock has done incredibly well with a 220% return over the last five years, so long term investors are no doubt ecstatic with that result. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

On a final note, we found 4 warning signs for Eurotel (2 are potentially serious) you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.