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

By
Simply Wall St
Published
April 15, 2022
SWX:IFCN
Source: Shutterstock

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of INFICON Holding (VTX:IFCN) looks great, so lets see what the trend can tell us.

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

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 INFICON Holding:

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

0.38 = US$100m ÷ (US$365m - US$101m) (Based on the trailing twelve months to December 2021).

Thus, INFICON Holding has an ROCE of 38%. That's a fantastic return and not only that, it outpaces the average of 16% earned by companies in a similar industry.

View our latest analysis for INFICON Holding

roce
SWX:IFCN Return on Capital Employed April 15th 2022

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.

What The Trend Of ROCE Can Tell Us

INFICON Holding is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially 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 52%. So we're very much inspired by what we're seeing at INFICON Holding thanks to its ability to profitably reinvest capital.

What We Can Learn From INFICON Holding's ROCE

In summary, it's great to see that INFICON Holding 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 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 INFICON Holding can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 1 warning sign for INFICON Holding you'll probably want to know about.

INFICON Holding is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.