Return Trends At Kulicke and Soffa Industries (NASDAQ:KLIC) Aren't Appealing

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over Kulicke and Soffa Industries' (NASDAQ:KLIC) trend of ROCE, we liked what we saw.

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. To calculate this metric for Kulicke and Soffa Industries, this is the formula:

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

0.16 = US$214m ÷ (US$1.5b - US$196m) (Based on the trailing twelve months to April 2023).

Thus, Kulicke and Soffa Industries has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 13% it's much better.

View our latest analysis for Kulicke and Soffa Industries

Above you can see how the current ROCE for Kulicke and Soffa Industries compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Kulicke and Soffa Industries.

So How Is Kulicke and Soffa Industries' ROCE Trending?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 16% for the last five years, and the capital employed within the business has risen 31% in that time. Since 16% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line

To sum it up, Kulicke and Soffa Industries has simply been reinvesting capital steadily, at those decent rates of return. And long term investors would be thrilled with the 133% return they've received over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

On a final note, we found 2 warning signs for Kulicke and Soffa Industries (1 is potentially serious) you should be aware of.

While Kulicke and Soffa Industries may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.