The Return Trends At Beijing YanDong MicroElectronic (SHSE:688172) Look Promising

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Beijing YanDong MicroElectronic (SHSE:688172) and its trend of ROCE, we really liked what we saw.

What Is 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. The formula for this calculation on Beijing YanDong MicroElectronic is:

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

0.00065 = CN¥11m ÷ (CN¥18b - CN¥1.7b) (Based on the trailing twelve months to March 2024).

Therefore, Beijing YanDong MicroElectronic has an ROCE of 0.07%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 3.9%.

Check out our latest analysis for Beijing YanDong MicroElectronic

Above you can see how the current ROCE for Beijing YanDong MicroElectronic compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Beijing YanDong MicroElectronic .

What Can We Tell From Beijing YanDong MicroElectronic's ROCE Trend?

The fact that Beijing YanDong MicroElectronic is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making four years ago but is is now generating 0.07% on its capital. In addition to that, Beijing YanDong MicroElectronic is employing 177% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

What We Can Learn From Beijing YanDong MicroElectronic's ROCE

Long story short, we're delighted to see that Beijing YanDong MicroElectronic's reinvestment activities have paid off and the company is now profitable. Given the stock has declined 34% in the last year, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

One more thing to note, we've identified 1 warning sign with Beijing YanDong MicroElectronic and understanding this should be part of your investment process.

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.

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