Lattice Semiconductor (NASDAQ:LSCC) Is Experiencing Growth In Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Lattice Semiconductor (NASDAQ:LSCC) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Lattice Semiconductor, this is the formula:

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

0.19 = US$145m ÷ (US$828m - US$80m) (Based on the trailing twelve months to June 2024).

Therefore, Lattice Semiconductor has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 9.0% generated by the Semiconductor industry.

View our latest analysis for Lattice Semiconductor

In the above chart we have measured Lattice Semiconductor'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 Lattice Semiconductor for free.

So How Is Lattice Semiconductor's ROCE Trending?

Lattice Semiconductor is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 19%. Basically the business is earning more per dollar of capital invested and in addition to that, 40% more capital is being employed now too. So we're very much inspired by what we're seeing at Lattice Semiconductor thanks to its ability to profitably reinvest capital.

The Key Takeaway

All in all, it's terrific to see that Lattice Semiconductor is reaping the rewards from prior investments and is growing its capital base. And a remarkable 137% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

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

While Lattice Semiconductor 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.