There's Been No Shortage Of Growth Recently For ON Semiconductor's (NASDAQ:ON) 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at ON Semiconductor (NASDAQ:ON) so let's look a bit deeper.

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 ON Semiconductor is:

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

0.18 = US$2.1b ÷ (US$14b - US$2.1b) (Based on the trailing twelve months to September 2024).

Therefore, ON Semiconductor has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 8.6% it's much better.

View our latest analysis for ON Semiconductor

Above you can see how the current ROCE for ON Semiconductor compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering ON Semiconductor for free.

So How Is ON Semiconductor's ROCE Trending?

Investors would be pleased with what's happening at ON Semiconductor. Over the last five years, returns on capital employed have risen substantially to 18%. The amount of capital employed has increased too, by 81%. So we're very much inspired by what we're seeing at ON Semiconductor thanks to its ability to profitably reinvest capital.

In Conclusion...

To sum it up, ON Semiconductor has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a separate note, we've found 1 warning sign for ON Semiconductor you'll probably want to know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.