Returns on Capital Paint A Bright Future For Kulicke and Soffa Industries (NASDAQ:KLIC)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Kulicke and Soffa Industries (NASDAQ:KLIC) looks great, so lets see what the trend can tell us.

Return On Capital Employed (ROCE): What Is It?

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 Kulicke and Soffa Industries, this is the formula:

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

0.25 = US$331m ÷ (US$1.5b - US$221m) (Based on the trailing twelve months to December 2022).

Therefore, Kulicke and Soffa Industries has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Semiconductor industry average of 14%.

Check out 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, you can check out the forecasts from the analysts covering Kulicke and Soffa Industries here for free.

SWOT Analysis for Kulicke and Soffa Industries

What Does the ROCE Trend For Kulicke and Soffa Industries Tell Us?

Kulicke and Soffa Industries is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 25%. Basically the business is earning more per dollar of capital invested and in addition to that, 33% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From Kulicke and Soffa Industries' ROCE

In summary, it's great to see that Kulicke and Soffa Industries can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. 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.

If you'd like to know more about Kulicke and Soffa Industries, we've spotted 2 warning signs, and 1 of them is a bit concerning.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.