If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Cirrus Logic (NASDAQ:CRUS) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Cirrus Logic is:

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

0.19 = US$398m ÷ (US$2.4b - US$229m) (Based on the trailing twelve months to September 2024).

Therefore, Cirrus Logic has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 8.6% generated by the Semiconductor industry.

Above you can see how the current ROCE for Cirrus Logic 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 Cirrus Logic .

So How Is Cirrus Logic's ROCE Trending?

We like the trends that we're seeing from Cirrus Logic. The data shows that returns on capital have increased substantially over the last five years to 19%. The amount of capital employed has increased too, by 53%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From Cirrus Logic's ROCE

All in all, it's terrific to see that Cirrus Logic is reaping the rewards from prior investments and is growing its capital base. Considering the stock has delivered 17% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

While Cirrus Logic looks impressive, no company is worth an infinite price. The intrinsic value infographic for CRUS helps visualize whether it is currently trading for a fair price.

While Cirrus Logic isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.