What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at HKT Trust and HKT (HKG:6823) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on HKT Trust and HKT is:

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

0.076 = HK$7.1b ÷ (HK$110b - HK$16b) (Based on the trailing twelve months to December 2021).

Thus, HKT Trust and HKT has an ROCE of 7.6%. On its own that's a low return, but compared to the average of 6.1% generated by the Telecom industry, it's much better.

Check out our latest analysis for HKT Trust and HKT

In the above chart we have measured HKT Trust and HKT'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 report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for HKT Trust and HKT'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. So don't be surprised if HKT Trust and HKT doesn't end up being a multi-bagger in a few years time. That being the case, it makes sense that HKT Trust and HKT has been paying out 117% of its earnings to its shareholders. These mature businesses typically have reliable earnings and not many places to reinvest them, so the next best option is to put the earnings into shareholders pockets.

Our Take On HKT Trust and HKT's ROCE

We can conclude that in regards to HKT Trust and HKT's returns on capital employed and the trends, there isn't much change to report on. Since the stock has gained an impressive 46% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you want to know some of the risks facing HKT Trust and HKT we've found 2 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

While HKT Trust and HKT isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.