There's Been No Shortage Of Growth Recently For Cirrus Logic's (NASDAQ:CRUS) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Speaking of which, we noticed some great changes in Cirrus Logic's (NASDAQ:CRUS) returns on capital, so let's have a look.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Cirrus Logic:

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

0.18 = US$377m ÷ (US$2.4b - US$211m) (Based on the trailing twelve months to December 2024).

So, Cirrus Logic has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 7.3% it's much better.

View our latest analysis for Cirrus Logic

In the above chart we have measured Cirrus Logic's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Cirrus Logic for free.

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Cirrus Logic. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 46% more capital is being employed now too. So we're very much inspired by what we're seeing at Cirrus Logic thanks to its ability to profitably reinvest capital.

What We Can Learn From Cirrus Logic's ROCE

All in all, it's terrific to see that Cirrus Logic is reaping the rewards from prior investments and is growing its capital base. And with a respectable 45% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Cirrus Logic can keep these trends up, it could have a bright future ahead.

While Cirrus Logic looks impressive, no company is worth an infinite price. The intrinsic value infographic for CRUS helps visualize whether it is currently trading for a fair price.

While Cirrus Logic may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.