Should You Invest In Foxsemicon Integrated Technology (TPE:3413)?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So when we looked at the ROCE trend of Foxsemicon Integrated Technology (TPE:3413) we really liked what we saw.

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. The formula for this calculation on Foxsemicon Integrated Technology is:

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

0.32 = NT$1.7b ÷ (NT$8.6b - NT$3.5b) (Based on the trailing twelve months to September 2020).

Thus, Foxsemicon Integrated Technology has an ROCE of 32%. In absolute terms that's a great return and it's even better than the Semiconductor industry average of 10%.

See our latest analysis for Foxsemicon Integrated Technology

Above you can see how the current ROCE for Foxsemicon Integrated Technology 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.

How Are Returns Trending?

Foxsemicon Integrated Technology is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 32%. Basically the business is earning more per dollar of capital invested and in addition to that, 158% more capital is being employed now too. So we're very much inspired by what we're seeing at Foxsemicon Integrated Technology thanks to its ability to profitably reinvest capital.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 40%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

The Key Takeaway

All in all, it's terrific to see that Foxsemicon Integrated Technology is reaping the rewards from prior investments and is growing its capital base. 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.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.

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. 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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