Why The 43% Return On Capital At Kulicke and Soffa Industries (NASDAQ:KLIC) Should Have Your Attention

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Kulicke and Soffa Industries' (NASDAQ:KLIC) returns on capital, so let's have a look.

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 Kulicke and Soffa Industries is:

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

0.43 = US$557m ÷ (US$1.6b - US$275m) (Based on the trailing twelve months to April 2022).

Therefore, Kulicke and Soffa Industries has an ROCE of 43%. In absolute terms that's a great return and it's even better than the Semiconductor industry average of 14%.

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'd like to see what analysts are forecasting going forward, you should check out our free report for Kulicke and Soffa Industries.

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

The trends we've noticed at Kulicke and Soffa Industries are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 43%. The amount of capital employed has increased too, by 40%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

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 133% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know more about Kulicke and Soffa Industries, we've spotted 3 warning signs, and 2 of them can't be ignored.

Kulicke and Soffa Industries is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.