Yahoo Finance QUALCOMM (NASDAQ:QCOM) Knows How To Allocate Capital Effectively
There are a few key trends to look for if we want to identify the next multi-bagger. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. And in light of that, the trends we're seeing at QUALCOMM's (NASDAQ:QCOM) look very promising so lets take a look.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for QUALCOMM, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.31 = US$13b ÷ (US$48b - US$7.9b) (Based on the trailing twelve months to March 2023).
So, QUALCOMM has an ROCE of 31%. In absolute terms that's a great return and it's even better than the Semiconductor industry average of 13%.
See our latest analysis for QUALCOMM
Above you can see how the current ROCE for QUALCOMM compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
The Trend Of ROCE
You'd find it hard not to be impressed with the ROCE trend at QUALCOMM. We found that the returns on capital employed over the last five years have risen by 226%. The company is now earning US$0.3 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 21% less than it was five years ago, which can be indicative of a business that's improving its efficiency. QUALCOMM may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.
The Bottom Line
In a nutshell, we're pleased to see that QUALCOMM has been able to generate higher returns from less capital. 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.
If you'd like to know about the risks facing QUALCOMM, we've discovered 1 warning sign that you should be aware of.
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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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.
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