If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Koninklijke KPN (AMS:KPN) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Koninklijke KPN, this is the formula:

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

0.14 = €1.4b ÷ (€13b - €2.7b) (Based on the trailing twelve months to June 2024).

Therefore, Koninklijke KPN has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 10.0% generated by the Telecom industry.

See our latest analysis for Koninklijke KPN

Above you can see how the current ROCE for Koninklijke KPN compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Koninklijke KPN for free.

So How Is Koninklijke KPN's ROCE Trending?

Koninklijke KPN is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 47% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line

To bring it all together, Koninklijke KPN has done well to increase the returns it's generating from its capital employed. Since the stock has returned a solid 67% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Koninklijke KPN can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Koninklijke KPN, we've discovered 2 warning signs that you should be aware of.