INFICON Holding (VTX:IFCN) Knows How To Allocate Capital Effectively

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in INFICON Holding's (VTX:IFCN) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for INFICON Holding, this is the formula:

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

0.35 = US$79m ÷ (US$349m - US$119m) (Based on the trailing twelve months to June 2021).

Thus, INFICON Holding has an ROCE of 35%. In absolute terms that's a great return and it's even better than the Electronic industry average of 16%.

Check out our latest analysis for INFICON Holding

In the above chart we have measured INFICON Holding's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

The trends we've noticed at INFICON Holding are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 35%. The amount of capital employed has increased too, by 53%. So we're very much inspired by what we're seeing at INFICON Holding thanks to its ability to profitably reinvest capital.

Our Take On INFICON Holding's ROCE

To sum it up, INFICON Holding has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

While INFICON Holding looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether IFCN is currently trading for a fair price.

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.
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