ASM International (AMS:ASM) Is Experiencing Growth In Returns On Capital

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. So on that note, ASM International (AMS:ASM) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for ASM International, this is the formula:

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

0.19 = €653m ÷ (€4.2b - €739m) (Based on the trailing twelve months to December 2023).

Therefore, ASM International has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 15% it's much better.

Check out our latest analysis for ASM International

Above you can see how the current ROCE for ASM International compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for ASM International .

How Are Returns Trending?

Investors would be pleased with what's happening at ASM International. The data shows that returns on capital have increased substantially over the last five years to 19%. The amount of capital employed has increased too, by 111%. So we're very much inspired by what we're seeing at ASM International thanks to its ability to profitably reinvest capital.

The Bottom Line

In summary, it's great to see that ASM International can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 1,177% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Like most companies, ASM International does come with some risks, and we've found 1 warning sign that you should be aware of.

While ASM International may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.