Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. With that in mind, we've noticed some promising trends at Everspin Technologies (NASDAQ:MRAM) so let's look a bit deeper.

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

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. The formula for this calculation on Everspin Technologies is:

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

0.076 = US$4.6m ÷ (US$66m - US$5.9m) (Based on the trailing twelve months to March 2024).

So, Everspin Technologies has an ROCE of 7.6%. On its own, that's a low figure but it's around the 8.9% average generated by the Semiconductor industry.

View our latest analysis for Everspin Technologies

In the above chart we have measured Everspin Technologies' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Everspin Technologies .

So How Is Everspin Technologies' ROCE Trending?

Everspin Technologies has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 7.6% on its capital. Not only that, but the company is utilizing 111% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

On a related note, the company's ratio of current liabilities to total assets has decreased to 8.9%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Everspin Technologies has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

What We Can Learn From Everspin Technologies' ROCE

In summary, it's great to see that Everspin Technologies has managed to break into profitability and is continuing to reinvest in its business. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. With that in mind, we believe the promising trends warrant this stock for further investigation.