ELES Semiconductor Equipment's (BIT:ELES) Returns On Capital Not Reflecting Well On The Business

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at ELES Semiconductor Equipment (BIT:ELES), it didn't seem to tick all of these boxes.

Understanding 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 ELES Semiconductor Equipment, this is the formula:

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

0.059 = €2.3m ÷ (€55m - €16m) (Based on the trailing twelve months to June 2024).

Thus, ELES Semiconductor Equipment has an ROCE of 5.9%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 12%.

See our latest analysis for ELES Semiconductor Equipment

Above you can see how the current ROCE for ELES Semiconductor Equipment compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for ELES Semiconductor Equipment .

What Does the ROCE Trend For ELES Semiconductor Equipment Tell Us?

On the surface, the trend of ROCE at ELES Semiconductor Equipment doesn't inspire confidence. Over the last five years, returns on capital have decreased to 5.9% from 9.7% five years ago. However it looks like ELES Semiconductor Equipment might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line

Bringing it all together, while we're somewhat encouraged by ELES Semiconductor Equipment's reinvestment in its own business, we're aware that returns are shrinking. And investors appear hesitant that the trends will pick up because the stock has fallen 64% in the last five years. Therefore based on the analysis done in this article, we don't think ELES Semiconductor Equipment has the makings of a multi-bagger.

Like most companies, ELES Semiconductor Equipment does come with some risks, and we've found 2 warning signs that you should be aware of.

While ELES Semiconductor Equipment isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.