Returns On Capital Are A Standout For Kulicke and Soffa Industries (NASDAQ:KLIC)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. And in light of that, the trends we're seeing at Kulicke and Soffa Industries' (NASDAQ:KLIC) look very promising so lets take a look.

What is 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 Kulicke and Soffa Industries is:

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

0.25 = US$278m ÷ (US$1.4b - US$308m) (Based on the trailing twelve months to July 2021).

Thus, Kulicke and Soffa Industries has an ROCE of 25%. That's a fantastic return and not only that, it outpaces the average of 13% earned by companies in a similar industry.

View our latest analysis for Kulicke and Soffa Industries

In the above chart we have measured Kulicke and Soffa Industries' 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

We like the trends that we're seeing from Kulicke and Soffa Industries. The data shows that returns on capital have increased substantially over the last five years to 25%. The amount of capital employed has increased too, by 29%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Kulicke and Soffa Industries' ROCE

All in all, it's terrific to see that Kulicke and Soffa Industries is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 373% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Kulicke and Soffa Industries can keep these trends up, it could have a bright future ahead.

Kulicke and Soffa Industries does come with some risks though, we found 4 warning signs in our investment analysis, and 2 of those don't sit too well with us...

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.

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.

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