LB Semicon's (KOSDAQ:061970) Returns On Capital Are Heading Higher

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Speaking of which, we noticed some great changes in LB Semicon's (KOSDAQ:061970) returns on capital, so let's have a look.

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. Analysts use this formula to calculate it for LB Semicon:

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

0.13 = ₩43b ÷ (₩527b - ₩196b) (Based on the trailing twelve months to December 2020).

So, LB Semicon has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 8.8% it's much better.

View our latest analysis for LB Semicon

Above you can see how the current ROCE for LB Semicon 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 LB Semicon here for free.

So How Is LB Semicon's ROCE Trending?

The trends we've noticed at LB Semicon are quite reassuring. Over the last three years, returns on capital employed have risen substantially to 13%. 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 129%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what LB Semicon has. 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 LB Semicon you'll probably want to know about.

While LB Semicon 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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