The Return Trends At QuickLogic (NASDAQ:QUIK) Look Promising

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at QuickLogic (NASDAQ:QUIK) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on QuickLogic is:

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

0.09 = US$2.1m ÷ (US$47m - US$25m) (Based on the trailing twelve months to June 2024).

Thus, QuickLogic has an ROCE of 9.0%. Even though it's in line with the industry average of 8.9%, it's still a low return by itself.

Check out our latest analysis for QuickLogic

In the above chart we have measured QuickLogic's 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 QuickLogic .

So How Is QuickLogic's ROCE Trending?

Shareholders will be relieved that QuickLogic has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 9.0% on its capital. While returns have increased, the amount of capital employed by QuickLogic has remained flat over the period. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

Another thing to note, QuickLogic has a high ratio of current liabilities to total assets of 52%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line

In summary, we're delighted to see that QuickLogic has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a solid 68% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if QuickLogic can keep these trends up, it could have a bright future ahead.

If you'd like to know more about QuickLogic, we've spotted 3 warning signs, and 1 of them shouldn't be ignored.

While QuickLogic 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.