Returns At Millicom International Cellular (NASDAQ:TIGO) Are On The Way Up
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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Millicom International Cellular (NASDAQ:TIGO) and its trend of ROCE, we really liked what we saw.
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. The formula for this calculation on Millicom International Cellular is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.073 = US$882m ÷ (US$14b - US$2.1b) (Based on the trailing twelve months to December 2022).
Thus, Millicom International Cellular has an ROCE of 7.3%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.2%.
See our latest analysis for Millicom International Cellular
Above you can see how the current ROCE for Millicom International Cellular compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Millicom International Cellular.
What Can We Tell From Millicom International Cellular's ROCE Trend?
Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Over the last five years, returns on capital employed have risen substantially to 7.3%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 63%. So we're very much inspired by what we're seeing at Millicom International Cellular thanks to its ability to profitably reinvest capital.
The Bottom Line On Millicom International Cellular's ROCE
All in all, it's terrific to see that Millicom International Cellular is reaping the rewards from prior investments and is growing its capital base. Given the stock has declined 58% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.
Millicom International Cellular does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those don't sit too well with us...
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.
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