Yahoo Finance Returns On Capital Are A Standout For Monolithic Power Systems (NASDAQ:MPWR)
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Monolithic Power Systems' (NASDAQ:MPWR) returns on capital, so let's have a look.
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 Monolithic Power Systems, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.30 = US$535m ÷ (US$2.1b - US$263m) (Based on the trailing twelve months to December 2022).
So, Monolithic Power Systems has an ROCE of 30%. In absolute terms that's a great return and it's even better than the Semiconductor industry average of 14%.
Check out our latest analysis for Monolithic Power Systems
Above you can see how the current ROCE for Monolithic Power Systems 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 Monolithic Power Systems here for free.
The Trend Of ROCE
We like the trends that we're seeing from Monolithic Power Systems. Over the last five years, returns on capital employed have risen substantially to 30%. The amount of capital employed has increased too, by 206%. So we're very much inspired by what we're seeing at Monolithic Power Systems thanks to its ability to profitably reinvest capital.
The Key Takeaway
All in all, it's terrific to see that Monolithic Power Systems is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 309% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
If you want to know some of the risks facing Monolithic Power Systems we've found 2 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
