We Like Shanghai Fudan Microelectronics Group's (HKG:1385) Returns And Here's How They're Trending

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of Shanghai Fudan Microelectronics Group (HKG:1385) looks great, so lets see what the trend can tell us.

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

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 Fudan Microelectronics Group is:

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

0.20 = CN¥814m ÷ (CN¥5.0b - CN¥986m) (Based on the trailing twelve months to June 2022).

Therefore, Shanghai Fudan Microelectronics Group has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.

See 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'd like, you can check out the forecasts from the analysts covering Shanghai Fudan Microelectronics Group here for free.

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

We like the trends that we're seeing from Shanghai Fudan Microelectronics Group. 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 170%. So we're very much inspired by what we're seeing at Shanghai Fudan Microelectronics Group thanks to its ability to profitably reinvest capital.

Our Take On Shanghai Fudan Microelectronics Group's ROCE

To sum it up, Shanghai Fudan Microelectronics Group has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 636% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

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

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.