Did you know there are some financial metrics that can provide clues of a potential 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. 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, the ROCE of Kulicke and Soffa Industries (NASDAQ:KLIC) looks great, so lets see what the trend can tell us.
What is Return On Capital Employed (ROCE)?
If you haven’t worked with ROCE before, it measures the ‘return’ (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Kulicke and Soffa Industries:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.38 = US$511m ÷ (US$1.7b – US$344m) (Based on the trailing twelve months to January 2022).
Thus, Kulicke and Soffa Industries has an ROCE of 38%. That’s a fantastic return and not only that, it outpaces the average of 15% earned by companies in a similar industry.
In the above chart we have measured Kulicke and Soffa Industries’ prior ROCE against its prior performance, but the future is arguably more important. If you’d like, you can check out the forecasts from the analysts covering Kulicke and Soffa Industries here for free.
How Are Returns Trending?
The trends we’ve noticed at Kulicke and Soffa Industries are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 38%. The company is effectively making more money per dollar of capital used, and it’s worth noting that the amount of capital has increased too, by 55%. So we’re very much inspired by what we’re seeing at Kulicke and Soffa Industries thanks to its ability to profitably reinvest capital.
What We Can Learn From Kulicke and Soffa Industries’ ROCE
All in all, it’s terrific to see that Kulicke and Soffa Industries is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it’s worth looking further into this stock because if Kulicke and Soffa Industries can keep these trends up, it could have a bright future ahead.
If you want to know some of the risks facing Kulicke and Soffa Industries we’ve found 5 warning signs (2 are potentially serious!) that you should be aware of before investing here.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.
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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.