Be Wary Of Mirai Semiconductors (KOSDAQ:254490) And Its Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Having said that, from a first glance at Mirai Semiconductors (KOSDAQ:254490) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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

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. Analysts use this formula to calculate it for Mirai Semiconductors:

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

0.11 = ₩11b ÷ (₩158b - ₩57b) (Based on the trailing twelve months to September 2024).

Therefore, Mirai Semiconductors has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 6.6% it's much better.

See our latest analysis for Mirai Semiconductors

Above you can see how the current ROCE for Mirai Semiconductors 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 Mirai Semiconductors for free.

What Does the ROCE Trend For Mirai Semiconductors Tell Us?

When we looked at the ROCE trend at Mirai Semiconductors, we didn't gain much confidence. To be more specific, ROCE has fallen from 36% over the last three years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

The Key Takeaway

In summary, despite lower returns in the short term, we're encouraged to see that Mirai Semiconductors is reinvesting for growth and has higher sales as a result. Furthermore the stock has climbed 13% over the last year, it would appear that investors are upbeat about the future. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

If you want to know some of the risks facing Mirai Semiconductors we've found 2 warning signs (1 is a bit concerning!) that you should be aware of before investing here.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.