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If you’re not sure where to start when looking for the next multi-bagger, there are a few key trends you should watch out for. First, we would like to identify a growth to recover on capital employed (ROCE) and at the same time, a based capital employed. This shows us that it is a composing machine, capable of continually reinvesting its profits in the business and generating higher returns. And in light of this, the trends that we are observing at Kulicke and Soffa Industries’ (NASDAQ: KLIC) look very promising, so let’s take a look.
What is Return on Employee Capital (ROCE)?
Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. The formula for this calculation on Kulicke and Soffa Industries is:
Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.25 = $ 278 million ÷ ($ 1.4 billion – $ 308 million) (Based on the last twelve months up to July 2021).
Thereby, Kulicke and Soffa Industries has a ROCE of 25%. It’s a fantastic return and not only that, it exceeds the 13% average earned by companies in a similar industry.
Check out our latest analysis for Kulicke and Soffa Industries
In the graph above, we measured Kulicke and Soffa Industries’ past ROCE against their past performance, but the future is arguably more important. If you are interested, you can view analyst forecasts in our free analyst forecast report for the company.
What the ROCE trend can tell us
We love the trends we see at Kulicke and Soffa Industries. Data shows that returns on capital have increased dramatically over the past five years to reach 25%. The amount of capital employed also increased by 29%. Increasing returns on an increasing amount of capital are common among multi-baggers and that is why we are impressed.
The result on the ROCE of Kulicke and Soffa Industries
Overall, it is great to see that Kulicke and Soffa Industries is reaping the rewards of past investments and growing its capital base. Given that the stock has returned 373% to shareholders over the past five years, it seems investors are recognizing these changes. In light of this, we believe it is worth taking this action further because if Kulicke and Soffa Industries can maintain these trends, they could have a bright future ahead of them.
Kulicke and Soffa Industries do carry certain risks however, we have found 4 warning signs in our investment analysis, and 2 of them don’t sit too well with us …
If you’d like to see other companies driving high returns, check out our free List of high yielding companies with strong balance sheets here.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.
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