Ingenic SemiconductorLtd (SZSE:300223) Is Doing The Right Things To Multiply Its Share Price

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Ingenic SemiconductorLtd (SZSE:300223) looks quite promising in regards to its trends of return on capital.

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. The formula for this calculation on Ingenic SemiconductorLtd is:

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

0.031 = CN¥367m ÷ (CN¥13b - CN¥696m) (Based on the trailing twelve months to March 2024).

Thus, Ingenic SemiconductorLtd has an ROCE of 3.1%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 4.0%.

View our latest analysis for Ingenic SemiconductorLtd

In the above chart we have measured Ingenic SemiconductorLtd's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Ingenic SemiconductorLtd .

What Can We Tell From Ingenic SemiconductorLtd's ROCE Trend?

The fact that Ingenic SemiconductorLtd is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 3.1% which is a sight for sore eyes. Not only that, but the company is utilizing 905% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Bottom Line On Ingenic SemiconductorLtd's ROCE

Long story short, we're delighted to see that Ingenic SemiconductorLtd's reinvestment activities have paid off and the company is now profitable. Since the stock has returned a staggering 102% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Ingenic SemiconductorLtd can keep these trends up, it could have a bright future ahead.

While Ingenic SemiconductorLtd looks impressive, no company is worth an infinite price. The intrinsic value infographic for 300223 helps visualize whether it is currently trading for a fair price.

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.