We like these underlying capital return trends at ON Semiconductor (NASDAQ:ON)


What trends should we look for if we want to identify stocks that can multiply in value over the long term? First, we’ll want to see proof to return to on capital employed (ROCE) which is increasing, and on the other hand, a base capital employed. Ultimately, this demonstrates that this is a company that reinvests its earnings at increasing rates of return. So on that note, ON Semiconductor (NASDAQ:ON) looks quite promising when it comes to its capital return trends.

Understanding return on capital employed (ROCE)

If you’ve never worked with ROCE before, it measures the “yield” (pre-tax profit) a company generates from the capital used in its business. Analysts use this formula to calculate it for ON Semiconductor:

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

0.17 = $1.4 billion ÷ ($9.6 billion – $1.5 billion) (Based on the last twelve months to December 2021).

So, ON Semiconductor has a ROCE of 17%. That’s a relatively normal return on capital, and it’s around the 15% generated by the semiconductor industry.

Check out our latest analysis for ON Semiconductor

NasdaqGS:ON Return on Capital Employed April 23, 2022

Above, you can see how ON Semiconductor’s current ROCE compares to its past returns on capital, but there’s little you can say about the past. If you want, you can check out analyst forecasts covering ON Semiconductor here for free.

So, what is the ROCE trend for ON Semiconductor?

ON Semiconductor shows positive trends. Figures show that over the past five years, returns generated on capital employed have increased significantly to 17%. The amount of capital employed also increased by 49%. This may indicate that there are many opportunities to invest capital internally and at ever-increasing rates, a common combination among multi-baggers.

Our view on ON Semiconductor’s ROCE

In summary, ON Semiconductor has proven that it can reinvest in the business and generate higher returns on that capital employed, which is great. And since the stock has performed exceptionally well over the past five years, these trends are taken into account by investors. Therefore, we think it would be worth checking whether these trends will continue.

Finally we found 2 warning signs for ON Semiconductor which we think you should be aware of.

Although ON Semiconductor doesn’t get the highest yield, check out this free list of companies that achieve high returns on equity with strong balance sheets.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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