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? 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. 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.

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What Is Return On Capital Employed (ROCE)?

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. 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)

0.064 = CN¥448m ÷ (CN¥9.2b - CN¥2.3b) (Based on the trailing twelve months to March 2025).

Thus, Shanghai Fudan Microelectronics Group has an ROCE of 6.4%. In absolute terms, that's a low return, but it's much better than the Semiconductor industry average of 3.3%.

See our latest analysis for Shanghai Fudan Microelectronics Group

In the above chart we have measured Shanghai Fudan Microelectronics Group'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 Shanghai Fudan Microelectronics Group .

What Can We Tell From Shanghai Fudan Microelectronics Group's ROCE Trend?

We're delighted to see that Shanghai Fudan Microelectronics Group 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 6.4% which is a sight for sore eyes. In addition to that, Shanghai Fudan Microelectronics Group is employing 231% 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.

Our Take On Shanghai Fudan Microelectronics Group's ROCE

To the delight of most shareholders, Shanghai Fudan Microelectronics Group has now broken into profitability. And a remarkable 197% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 1 warning sign facing Shanghai Fudan Microelectronics Group that you might find interesting.

While Shanghai Fudan Microelectronics Group 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.