The Return Trends At Hangzhou Silan MicroelectronicsLtd (SHSE:600460) Look Promising

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Hangzhou Silan MicroelectronicsLtd (SHSE:600460) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Hangzhou Silan MicroelectronicsLtd, this is the formula:

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

0.02 = CN¥347m ÷ (CN¥24b - CN¥6.9b) (Based on the trailing twelve months to September 2024).

Thus, Hangzhou Silan MicroelectronicsLtd has an ROCE of 2.0%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 4.8%.

Check out our latest analysis for Hangzhou Silan MicroelectronicsLtd

Above you can see how the current ROCE for Hangzhou Silan MicroelectronicsLtd 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 analyst report for Hangzhou Silan MicroelectronicsLtd .

What The Trend Of ROCE Can Tell Us

We're delighted to see that Hangzhou Silan MicroelectronicsLtd is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 2.0% on its capital. In addition to that, Hangzhou Silan MicroelectronicsLtd is employing 219% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

Our Take On Hangzhou Silan MicroelectronicsLtd's ROCE

To the delight of most shareholders, Hangzhou Silan MicroelectronicsLtd has now broken into profitability. And with a respectable 77% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 2 warning signs facing Hangzhou Silan MicroelectronicsLtd that you might find interesting.

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.