The Return Trends At China Wafer Level CSP (SHSE:603005) Look Promising

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 China Wafer Level CSP (SHSE:603005) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

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 China Wafer Level CSP, this is the formula:

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

0.026 = CN¥116m ÷ (CN¥4.9b - CN¥496m) (Based on the trailing twelve months to March 2024).

Therefore, China Wafer Level CSP has an ROCE of 2.6%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 3.9%.

Check out our latest analysis for China Wafer Level CSP

Above you can see how the current ROCE for China Wafer Level CSP 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 China Wafer Level CSP for free.

What Can We Tell From China Wafer Level CSP's ROCE Trend?

We're delighted to see that China Wafer Level CSP is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 2.6% which is a sight for sore eyes. Not only that, but the company is utilizing 115% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line On China Wafer Level CSP's ROCE

To the delight of most shareholders, China Wafer Level CSP has now broken into profitability. Since the stock has returned a staggering 186% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for 603005 on our platform that is definitely worth checking out.

While China Wafer Level CSP 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com