United Microelectronics (TWSE:2303) Shareholders Will Want The ROCE Trajectory To Continue

What trends should we look for it we want to identify stocks that can 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at United Microelectronics (TWSE:2303) so let's look a bit deeper.

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. Analysts use this formula to calculate it for United Microelectronics:

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

0.11 = NT$55b ÷ (NT$567b - NT$88b) (Based on the trailing twelve months to March 2024).

Therefore, United Microelectronics has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 8.0% it's much better.

View our latest analysis for United Microelectronics

Above you can see how the current ROCE for United Microelectronics 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 analyst report for United Microelectronics .

What Can We Tell From United Microelectronics' ROCE Trend?

The trends we've noticed at United Microelectronics are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 11%. Basically the business is earning more per dollar of capital invested and in addition to that, 49% more capital is being employed now too. So we're very much inspired by what we're seeing at United Microelectronics thanks to its ability to profitably reinvest capital.

What We Can Learn From United Microelectronics' ROCE

All in all, it's terrific to see that United Microelectronics is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 418% 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 United Microelectronics can keep these trends up, it could have a bright future ahead.

United Microelectronics does have some risks, we noticed 2 warning signs (and 1 which is significant) we think you should know about.

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. 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.

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