If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. In light of that, when we looked at Wuxi Chipown Micro-electronics (SHSE:688508) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Wuxi Chipown Micro-electronics, this is the formula:

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

0.0034 = CN¥8.6m ÷ (CN¥2.8b - CN¥309m) (Based on the trailing twelve months to September 2023).

Therefore, Wuxi Chipown Micro-electronics has an ROCE of 0.3%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 4.4%.

See our latest analysis for Wuxi Chipown Micro-electronics

Above you can see how the current ROCE for Wuxi Chipown Micro-electronics 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 Wuxi Chipown Micro-electronics here for free.

So How Is Wuxi Chipown Micro-electronics' ROCE Trending?

The trend of ROCE doesn't look fantastic because it's fallen from 20% five years ago, while the business's capital employed increased by 922%. That being said, Wuxi Chipown Micro-electronics raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. It's unlikely that all of the funds raised have been put to work yet, so as a consequence Wuxi Chipown Micro-electronics might not have received a full period of earnings contribution from it.

The Key Takeaway

To conclude, we've found that Wuxi Chipown Micro-electronics is reinvesting in the business, but returns have been falling. And in the last three years, the stock has given away 49% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Wuxi Chipown Micro-electronics does have some risks though, and we've spotted 3 warning signs for Wuxi Chipown Micro-electronics that you might be interested in.

While Wuxi Chipown Micro-electronics isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.