Anji Microelectronics Technology (Shanghai) (SHSE:688019) Is Looking To Continue Growing Its Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 on that note, Anji Microelectronics Technology (Shanghai) (SHSE:688019) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Anji Microelectronics Technology (Shanghai), this is the formula:

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

0.13 = CN¥316m ÷ (CN¥2.6b - CN¥193m) (Based on the trailing twelve months to December 2023).

So, Anji Microelectronics Technology (Shanghai) has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 4.9% generated by the Semiconductor industry.

View our latest analysis for Anji Microelectronics Technology (Shanghai)

In the above chart we have measured Anji Microelectronics Technology (Shanghai)'s prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Anji Microelectronics Technology (Shanghai) for free.

How Are Returns Trending?

The trends we've noticed at Anji Microelectronics Technology (Shanghai) are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 13%. 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 562%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On Anji Microelectronics Technology (Shanghai)'s ROCE

All in all, it's terrific to see that Anji Microelectronics Technology (Shanghai) is reaping the rewards from prior investments and is growing its capital base. Since the stock has only returned 19% to shareholders over the last three years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Anji Microelectronics Technology (Shanghai) does have some risks though, and we've spotted 1 warning sign for Anji Microelectronics Technology (Shanghai) that you might be interested in.

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.

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

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.