Will Silicon Works (KOSDAQ:108320) Multiply In Value Going Forward?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. That's why when we briefly looked at Silicon Works' (KOSDAQ:108320) ROCE trend, we were pretty happy with what we saw.

Understanding 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. To calculate this metric for Silicon Works, this is the formula:

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

0.18 = ₩95b ÷ (₩796b - ₩262b) (Based on the trailing twelve months to September 2020).

Therefore, Silicon Works has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 9.8% it's much better.

Check out our latest analysis for Silicon Works

Above you can see how the current ROCE for Silicon Works 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 report on analyst forecasts for the company.

What Does the ROCE Trend For Silicon Works Tell Us?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 18% for the last five years, and the capital employed within the business has risen 56% in that time. 18% is a pretty standard return, and it provides some comfort knowing that Silicon Works has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

What We Can Learn From Silicon Works' ROCE

The main thing to remember is that Silicon Works has proven its ability to continually reinvest at respectable rates of return. And long term investors would be thrilled with the 179% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Silicon Works does have some risks though, and we've spotted 2 warning signs for Silicon Works that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. 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.
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