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- SEHK:522
Capital Investment Trends At ASM Pacific Technology (HKG:522) Look Strong
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. Ergo, when we looked at the ROCE trends at ASM Pacific Technology (HKG:522), we liked what we saw.
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. The formula for this calculation on ASM Pacific Technology is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.21 = HK$4.1b ÷ (HK$27b - HK$6.9b) (Based on the trailing twelve months to December 2021).
Therefore, ASM Pacific Technology has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.
See our latest analysis for ASM Pacific Technology
In the above chart we have measured ASM Pacific Technology's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for ASM Pacific Technology.
So How Is ASM Pacific Technology's ROCE Trending?
It's hard not to be impressed by ASM Pacific Technology's returns on capital. The company has consistently earned 21% for the last five years, and the capital employed within the business has risen 108% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If ASM Pacific Technology can keep this up, we'd be very optimistic about its future.
One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 26% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.
The Bottom Line
In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. However, despite the favorable fundamentals, the stock has fallen 20% over the last five years, so there might be an opportunity here for astute investors. For that reason, savvy investors might want to look further into this company in case it's a prime investment.
If you'd like to know more about ASM Pacific Technology, we've spotted 2 warning signs, and 1 of them shouldn't be ignored.
If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.
About SEHK:522
ASMPT
An investment holding company, engages in the design, manufacture, and marketing of machines, tools, and materials used in the semiconductor and electronics assembly industries worldwide.
Excellent balance sheet with reasonable growth potential.
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