What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Ingenic SemiconductorLtd (SZSE:300223) and its trend of ROCE, we really liked what we saw.

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 Ingenic SemiconductorLtd:

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

0.019 = CN¥222m ÷ (CN¥13b - CN¥890m) (Based on the trailing twelve months to September 2023).

Thus, Ingenic SemiconductorLtd has an ROCE of 1.9%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 4.2%.

View our latest analysis for Ingenic SemiconductorLtd

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

What The Trend Of ROCE Can Tell Us

Ingenic SemiconductorLtd has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 1.9% which is a sight for sore eyes. In addition to that, Ingenic SemiconductorLtd is employing 911% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

What We Can Learn From Ingenic SemiconductorLtd's ROCE

In summary, it's great to see that Ingenic SemiconductorLtd has managed to break into profitability and is continuing to reinvest in its business. 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 2 warning signs for Ingenic SemiconductorLtd 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.