What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Lattice Semiconductor (NASDAQ:LSCC) looks great, so lets see what the trend can tell us.
What Is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Lattice Semiconductor, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.29 = US$214m ÷ (US$841m - US$97m) (Based on the trailing twelve months to December 2023).
So, Lattice Semiconductor has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Semiconductor industry average of 9.7%.
NasdaqGS:LSCC Return on Capital Employed April 3rd 2024
Above you can see how the current ROCE for Lattice Semiconductor 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 analyst report for Lattice Semiconductor .
What Does the ROCE Trend For Lattice Semiconductor Tell Us?
Investors would be pleased with what's happening at Lattice Semiconductor. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 29%. Basically the business is earning more per dollar of capital invested and in addition to that, 34% more capital is being employed now too. So we're very much inspired by what we're seeing at Lattice Semiconductor thanks to its ability to profitably reinvest capital.
Our Take On Lattice Semiconductor's ROCE
To sum it up, Lattice Semiconductor has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.
Lattice Semiconductor does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...
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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