The Return Trends At Tele2 (STO:TEL2 B) Look Promising

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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, we've noticed some promising trends at Tele2 (STO:TEL2 B) so let's look a bit deeper.

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. To calculate this metric for Tele2, this is the formula:

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

0.12 = kr5.9b ÷ (kr65b - kr15b) (Based on the trailing twelve months to June 2024).

So, Tele2 has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 8.9% generated by the Wireless Telecom industry.

Check out our latest analysis for Tele2

In the above chart we have measured Tele2'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 Tele2 .

How Are Returns Trending?

We're pretty happy with how the ROCE has been trending at Tele2. The figures show that over the last five years, returns on capital have grown by 95%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Speaking of capital employed, the company is actually utilizing 29% less than it was five years ago, which can be indicative of a business that's improving its efficiency. Tele2 may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

Our Take On Tele2's ROCE

In a nutshell, we're pleased to see that Tele2 has been able to generate higher returns from less capital. Since the stock has only returned 23% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you want to continue researching Tele2, you might be interested to know about the 2 warning signs that our analysis has discovered.

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. 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.