AUS
NZ
UK
CA
USA
IND
Highlights:
EnSilica's return on capital employed (ROCE) stands at 3.1%, below the semiconductor industry average of 12%.
Despite increased capital employed by 444% over the last five years, the company has seen a decline in ROCE from 12% to 3.1%.
While returns have recently fallen, EnSilica’s sales growth and reinvestment into its operations may offer future potential.
EnSilica's Performance and ROCE :
EnSilica, (LSE:ENSI) a designer and supplier of custom application-specific integrated circuits (ASICs) across the UK, India, and Brazil, has released an update that raises questions about its capital efficiency. The company’s return on capital employed (ROCE) currently stands at 3.1%, which is notably lower than the semiconductor industry’s average of 12%. This decline in ROCE is primarily attributed to a significant increase in capital employed, which rose by 444% over the past five years.
ROCE is an important metric that gauges how effectively a company uses its capital to generate returns. The formula for calculating ROCE is:
ROCE = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
For EnSilica, the calculation based on the latest figures (May 2024) shows an EBIT of £872k against capital employed of £28m, which results in the low ROCE figure. The increase in capital employed is partly due to a capital raise, which, while boosting the company’s capital base, has not yet translated into higher earnings, contributing to the reduction in ROCE.
Although the company has faced challenges in terms of profitability and capital efficiency, it’s worth noting that EnSilica has shown sales growth, indicating that its business model may still hold long-term potential. The funds raised in the capital raise may yet have a positive impact once they are put to work within the business, suggesting that the future performance of the company could improve if the capital is deployed effectively.
In conclusion, while EnSilica’s recent performance does not indicate strong returns on capital, its ongoing reinvestment into the business and sales growth presents opportunities for further monitoring. Investors may want to keep an eye on how the company’s use of its increased capital plays out in the coming quarters.
