Investors Shouldn't Overlook ASM International's (AMS:ASM) Impressive Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of ASM International (AMS:ASM) looks great, so lets see what the trend can tell us.

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. The formula for this calculation on ASM International is:

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

0.20 = €523m ÷ (€3.1b - €531m) (Based on the trailing twelve months to June 2022).

Therefore, ASM International has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Semiconductor industry average of 14%.

Check out the opportunities and risks within the XX Semiconductor industry.

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, you can check out the forecasts from the analysts covering ASM International here for free.

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 20%. The amount of capital employed has increased too, by 31%. So we're very much inspired by what we're seeing at ASM International thanks to its ability to profitably reinvest capital.

What We Can Learn From ASM International's ROCE

All in all, it's terrific to see that ASM International is reaping the rewards from prior investments and is growing its capital base. And a remarkable 440% 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.

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

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.