Everlight Electronics (TWSE:2393) Is Looking To Continue Growing Its Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Everlight Electronics (TWSE:2393) 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. To calculate this metric for Everlight Electronics, this is the formula:

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

0.11 = NT$2.2b ÷ (NT$29b - NT$8.9b) (Based on the trailing twelve months to June 2024).

So, Everlight Electronics has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 8.8% it's much better.

View our latest analysis for Everlight Electronics

In the above chart we have measured Everlight Electronics' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Everlight Electronics .

What Can We Tell From Everlight Electronics' ROCE Trend?

Everlight Electronics' ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 165% whilst employing roughly the same amount of capital. 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. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

What We Can Learn From Everlight Electronics' ROCE

In summary, we're delighted to see that Everlight Electronics 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 267% 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 Everlight Electronics can keep these trends up, it could have a bright future ahead.

Like most companies, Everlight Electronics does come with some risks, and we've found 1 warning sign that you should be aware of.

While Everlight Electronics 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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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.