Investors Shouldn't Overlook Unigroup Guoxin Microelectronics' (SZSE:002049) Impressive Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. And in light of that, the trends we're seeing at Unigroup Guoxin Microelectronics' (SZSE:002049) look very promising so lets take a look.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Unigroup Guoxin Microelectronics:

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

0.20 = CN¥2.7b ÷ (CN¥17b - CN¥4.2b) (Based on the trailing twelve months to September 2023).

So, Unigroup Guoxin Microelectronics has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Semiconductor industry average of 5.3%.

View our latest analysis for Unigroup Guoxin Microelectronics

In the above chart we have measured Unigroup Guoxin Microelectronics' 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 Unigroup Guoxin Microelectronics for free.

The Trend Of ROCE

The trends we've noticed at Unigroup Guoxin Microelectronics are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 20%. 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 187%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Unigroup Guoxin Microelectronics' ROCE

All in all, it's terrific to see that Unigroup Guoxin Microelectronics is reaping the rewards from prior investments and is growing its capital base. And with a respectable 91% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for 002049 that compares the share price and estimated value.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.