Shareholders Would Enjoy A Repeat Of QUALCOMM's (NASDAQ:QCOM) Recent Growth In Returns

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So when we looked at the ROCE trend of QUALCOMM (NASDAQ:QCOM) we really liked what we saw.

Understanding 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 QUALCOMM:

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

0.31 = US$13b ÷ (US$48b - US$7.9b) (Based on the trailing twelve months to March 2023).

Therefore, QUALCOMM has an ROCE of 31%. That's a fantastic return and not only that, it outpaces the average of 13% earned by companies in a similar industry.

Check out our latest analysis for QUALCOMM

Above you can see how the current ROCE for QUALCOMM 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 QUALCOMM here for free.

SWOT Analysis for QUALCOMM

What Does the ROCE Trend For QUALCOMM Tell Us?

We're pretty happy with how the ROCE has been trending at QUALCOMM. We found that the returns on capital employed over the last five years have risen by 226%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, QUALCOMM appears to been achieving more with less, since the business is using 21% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

What We Can Learn From QUALCOMM's ROCE

In a nutshell, we're pleased to see that QUALCOMM has been able to generate higher returns from less capital. And a remarkable 123% total return over the last five years tells us that investors are expecting more good things to come in the future. 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.

If you'd like to know more about QUALCOMM, we've spotted 2 warning signs, and 1 of them is concerning.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.