What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of ecotel communication ag (ETR:E4C) looks great, so lets see what the trend can tell us.

What Is 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. To calculate this metric for ecotel communication ag, this is the formula:

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

0.25 = €7.7m ÷ (€47m - €17m) (Based on the trailing twelve months to December 2023).

Thus, ecotel communication ag has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Telecom industry average of 8.2%.

Check out our latest analysis for ecotel communication ag

Above you can see how the current ROCE for ecotel communication ag compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for ecotel communication ag .

What The Trend Of ROCE Can Tell Us

ecotel communication ag's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 234% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line

In summary, we're delighted to see that ecotel communication ag has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 229% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Like most companies, ecotel communication ag does come with some risks, and we've found 3 warning signs that you should be aware of.