Returns Are Gaining Momentum At Shanghai Fudan Microelectronics Group (HKG:1385)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Shanghai Fudan Microelectronics Group's (HKG:1385) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Shanghai Fudan Microelectronics Group is:

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

0.084 = CN¥559m ÷ (CN¥8.8b - CN¥2.2b) (Based on the trailing twelve months to December 2024).

So, Shanghai Fudan Microelectronics Group has an ROCE of 8.4%. In absolute terms, that's a low return, but it's much better than the Semiconductor industry average of 6.4%.

View our latest analysis for Shanghai Fudan Microelectronics Group

Above you can see how the current ROCE for Shanghai Fudan Microelectronics Group 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 Shanghai Fudan Microelectronics Group .

What Does the ROCE Trend For Shanghai Fudan Microelectronics Group Tell Us?

The fact that Shanghai Fudan Microelectronics Group is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 8.4% on its capital. In addition to that, Shanghai Fudan Microelectronics Group is employing 228% 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.

The Bottom Line

To the delight of most shareholders, Shanghai Fudan Microelectronics Group has now broken into profitability. Since the stock has returned a staggering 472% to shareholders over the last five years, it looks like investors are recognizing these changes. 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 1385 that compares the share price and estimated value.

While Shanghai Fudan Microelectronics Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.