Picture of a sign outside saying "Texas Instruments."

Image source: Texas Instruments.

What happened

Texas Instruments' (NYSE:TI) stock price gained 34.28% in 2016, according to data provided by S&P Global Market Intelligence, mainly thanks to the company's gross margin improvements from increased business efficiencies, which sent TI's free cash flow back to investors.

Chart of Texas Instruments stock price change in 2016.

Image source: YCharts.

So what

Texas Intstruments' stock price slowly started climbing in the first half of 2016, after the company beat bottom-line estimates in fiscal Q4 2015 and Q1 2016. TI didn't increase revenues, necessarily, but improvements to the company's business efficiencies, along with focusing on more lucrative businesses, pushed the company's gross margins up to record levels.

Investors bumped up the company's stock price again in July, after the company reported second-quarter revenue that was up 1% year over year, and operating profit jumped by 11%. Investors were likely pleased with the net income increase of 12% year over year and the company's operating profits of 61.2%.

Strong gross margins are more than just good business practice for TI; the company also has a policy to return all of its free cash flow returns to shareholders. That means as the company's margins go up, so do the returns to investors. At the end of October 2016, the company said it had returned $3.8 billion to shareholders over the past 12 months, through stock repurchases and dividends.

Now what

In Q4 2016, reported late last month, TI managed to increase revenue by 7% year over year and grew revenue from its core businesses -- analog and embedded processing -- by 10% and 6%, respectively. The company is also expecting revenues for the fiscal first-quarter 2017 to fall between $3.17 billion and $3.43 billion, with earnings per share of $0.78 to $0.88. The high end of those estimates would easily top the analyst consensus of $3.21 billion and $0.82 EPS. Investors likely have more to look forward to this year if the company manages to both boost revenues and keep margins high.

Chris Neiger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.