The Return Trends At National Silicon Industry GroupLtd (SHSE:688126) Look Promising

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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 National Silicon Industry GroupLtd (SHSE:688126) and its trend of ROCE, we really liked what we saw.

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. To calculate this metric for National Silicon Industry GroupLtd, this is the formula:

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

0.0073 = CN¥179m ÷ (CN¥27b - CN¥2.1b) (Based on the trailing twelve months to December 2023).

Therefore, National Silicon Industry GroupLtd has an ROCE of 0.7%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 5.5%.

See our latest analysis for National Silicon Industry GroupLtd

In the above chart we have measured National Silicon Industry GroupLtd'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 National Silicon Industry GroupLtd for free.

What Does the ROCE Trend For National Silicon Industry GroupLtd Tell Us?

We're delighted to see that National Silicon Industry GroupLtd is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 0.7% on its capital. Not only that, but the company is utilizing 360% more capital than before, but that's to be expected from a company 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.

One more thing to note, National Silicon Industry GroupLtd has decreased current liabilities to 7.9% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

Our Take On National Silicon Industry GroupLtd's ROCE

Long story short, we're delighted to see that National Silicon Industry GroupLtd's reinvestment activities have paid off and the company is now profitable. Given the stock has declined 41% in the last three years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Like most companies, National Silicon Industry GroupLtd does come with some risks, and we've found 1 warning sign that you should be aware of.

While National Silicon Industry GroupLtd 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.