Investors Could Be Concerned With Will Semiconductor's (SHSE:603501) Returns On Capital

If you're looking for a multi-bagger, there's a few things to 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Will Semiconductor (SHSE:603501), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Will Semiconductor:

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

0.07 = CN¥2.0b ÷ (CN¥37b - CN¥8.2b) (Based on the trailing twelve months to June 2024).

Therefore, Will Semiconductor has an ROCE of 7.0%. On its own that's a low return, but compared to the average of 4.3% generated by the Semiconductor industry, it's much better.

Check out our latest analysis for Will Semiconductor

Above you can see how the current ROCE for Will Semiconductor 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 Will Semiconductor .

What Can We Tell From Will Semiconductor's ROCE Trend?

The trend of ROCE doesn't look fantastic because it's fallen from 27% five years ago, while the business's capital employed increased by 1,585%. That being said, Will Semiconductor raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. Will Semiconductor probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt.

On a side note, Will Semiconductor has done well to pay down its current liabilities to 22% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

The Bottom Line

In summary, despite lower returns in the short term, we're encouraged to see that Will Semiconductor is reinvesting for growth and has higher sales as a result. Furthermore the stock has climbed 47% over the last five years, it would appear that investors are upbeat about the future. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

If you're still interested in Will Semiconductor it's worth checking out our FREE intrinsic value approximation for 603501 to see if it's trading at an attractive price in other respects.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.