The Returns At Circuit Fabology Microelectronics EquipmentLtd (SHSE:688630) Aren't Growing

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Circuit Fabology Microelectronics EquipmentLtd (SHSE:688630) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is 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 Circuit Fabology Microelectronics EquipmentLtd, this is the formula:

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

0.088 = CN¥184m ÷ (CN¥2.6b - CN¥509m) (Based on the trailing twelve months to June 2024).

Thus, Circuit Fabology Microelectronics EquipmentLtd has an ROCE of 8.8%. In absolute terms, that's a low return, but it's much better than the Semiconductor industry average of 4.3%.

View our latest analysis for Circuit Fabology Microelectronics EquipmentLtd

In the above chart we have measured Circuit Fabology Microelectronics EquipmentLtd'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 Circuit Fabology Microelectronics EquipmentLtd for free.

What Does the ROCE Trend For Circuit Fabology Microelectronics EquipmentLtd Tell Us?

There are better returns on capital out there than what we're seeing at Circuit Fabology Microelectronics EquipmentLtd. The company has consistently earned 8.8% for the last five years, and the capital employed within the business has risen 784% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Our Take On Circuit Fabology Microelectronics EquipmentLtd's ROCE

As we've seen above, Circuit Fabology Microelectronics EquipmentLtd's returns on capital haven't increased but it is reinvesting in the business. And investors may be recognizing these trends since the stock has only returned a total of 15% to shareholders over the last three years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

One more thing: We've identified 3 warning signs with Circuit Fabology Microelectronics EquipmentLtd (at least 1 which is concerning) , and understanding these would certainly be useful.

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.