The Return Trends At Shanghai Fullhan Microelectronics (SZSE:300613) Look Promising

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Shanghai Fullhan Microelectronics (SZSE:300613) looks quite promising in regards to its trends of return on capital.

Understanding 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. The formula for this calculation on Shanghai Fullhan Microelectronics is:

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

0.05 = CN¥169m ÷ (CN¥3.6b - CN¥217m) (Based on the trailing twelve months to March 2024).

Thus, Shanghai Fullhan Microelectronics has an ROCE of 5.0%. In absolute terms, that's a low return, but it's much better than the Semiconductor industry average of 3.9%.

View our latest analysis for Shanghai Fullhan Microelectronics

Above you can see how the current ROCE for Shanghai Fullhan Microelectronics compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Shanghai Fullhan Microelectronics for free.

The Trend Of ROCE

We're delighted to see that Shanghai Fullhan Microelectronics is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 5.0% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Shanghai Fullhan Microelectronics is utilizing 227% more capital than it was five years ago. 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.

What We Can Learn From Shanghai Fullhan Microelectronics' ROCE

Overall, Shanghai Fullhan Microelectronics gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a separate note, we've found 1 warning sign for Shanghai Fullhan Microelectronics you'll probably want to know about.

While Shanghai Fullhan Microelectronics may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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