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The Returns At Koninklijke KPN (AMS:KPN) Aren't Growing

Simply Wall St · 06/10 04:21

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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 Koninklijke KPN (AMS:KPN), it didn't seem to tick all of these boxes.

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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. Analysts use this formula to calculate it for Koninklijke KPN:

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

0.12 = €1.4b ÷ (€14b - €2.3b) (Based on the trailing twelve months to March 2025).

So, Koninklijke KPN has an ROCE of 12%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Telecom industry average of 11%.

See our latest analysis for Koninklijke KPN

roce
ENXTAM:KPN Return on Capital Employed June 10th 2025

In the above chart we have measured Koninklijke KPN's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Koninklijke KPN .

The Trend Of ROCE

Over the past five years, Koninklijke KPN's ROCE and capital employed have both remained mostly flat. 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 Koninklijke KPN to be a multi-bagger going forward. That being the case, it makes sense that Koninklijke KPN has been paying out 76% of its earnings to its shareholders. If the company is in fact lacking growth opportunities, that's one of the viable alternatives for the money.

The Key Takeaway

In summary, Koninklijke KPN isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 134% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

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

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