Returns At Telekom Slovenije d.d (LJSE:TLSG) Appear To Be Weighed Down

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Although, when we looked at Telekom Slovenije d.d (LJSE:TLSG), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Telekom Slovenije d.d, this is the formula:

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

0.033 = €31m ÷ (€1.3b - €330m) (Based on the trailing twelve months to March 2021).

Therefore, Telekom Slovenije d.d has an ROCE of 3.3%. In absolute terms, that's a low return and it also under-performs the Telecom industry average of 8.8%.

See our latest analysis for Telekom Slovenije d.d

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

How Are Returns Trending?

There hasn't been much to report for Telekom Slovenije d.d's returns and its level of capital employed because both metrics have been steady for the past five years. 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 Telekom Slovenije d.d to be a multi-bagger going forward.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 26% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

In Conclusion...

We can conclude that in regards to Telekom Slovenije d.d's returns on capital employed and the trends, there isn't much change to report on. And investors may be recognizing these trends since the stock has only returned a total of 22% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

One more thing: We've identified 4 warning signs with Telekom Slovenije d.d (at least 1 which doesn't sit too well with us) , and understanding them would certainly be useful.

While Telekom Slovenije d.d 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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