Can Champion Microelectronic (TPE:3257) Continue To Grow Its Returns On Capital?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Champion Microelectronic's (TPE:3257) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Champion Microelectronic is:

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

0.14 = NT$215m ÷ (NT$1.7b - NT$213m) (Based on the trailing twelve months to September 2020).

So, Champion Microelectronic has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 10% generated by the Semiconductor industry.

Check out our latest analysis for Champion Microelectronic

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Champion Microelectronic's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Champion Microelectronic has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 28% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

Our Take On Champion Microelectronic's ROCE

In summary, we're delighted to see that Champion Microelectronic has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 106% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Champion Microelectronic can keep these trends up, it could have a bright future ahead.

Champion Microelectronic does have some risks, we noticed 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

While Champion Microelectronic 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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