Skyworks Solutions (NASDAQ:SWKS) Will Want To Turn Around Its Return Trends

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. Looking at Skyworks Solutions (NASDAQ:SWKS), it does have a high ROCE right now, but lets see how returns are trending.

What Is 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 Skyworks Solutions:

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

0.20 = US$1.5b ÷ (US$8.7b - US$1.2b) (Based on the trailing twelve months to July 2022).

So, Skyworks Solutions has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Semiconductor industry average of 15%.

Check out our latest analysis for Skyworks Solutions

Above you can see how the current ROCE for Skyworks Solutions compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Skyworks Solutions.

What Can We Tell From Skyworks Solutions' ROCE Trend?

When we looked at the ROCE trend at Skyworks Solutions, we didn't gain much confidence. While it's comforting that the ROCE is high, five years ago it was 30%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From Skyworks Solutions' ROCE

While returns have fallen for Skyworks Solutions in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. In light of this, the stock has only gained 4.4% over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

Skyworks Solutions does have some risks though, and we've spotted 1 warning sign for Skyworks Solutions that you might be interested in.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.