Will Intevac's (NASDAQ:IVAC) Growth In ROCE Persist?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. So when we looked at Intevac (NASDAQ:IVAC) and its trend of ROCE, we really liked what we saw.

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 Intevac, this is the formula:

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

0.072 = US$7.7m ÷ (US$124m - US$17m) (Based on the trailing twelve months to September 2020).

Therefore, Intevac has an ROCE of 7.2%. In absolute terms, that's a low return, but it's much better than the Tech industry average of 5.8%.

See our latest analysis for Intevac

Above you can see how the current ROCE for Intevac 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 Intevac here for free.

How Are Returns Trending?

We're delighted to see that Intevac is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 7.2% which is a sight for sore eyes. In addition to that, Intevac is employing 22% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Key Takeaway

To the delight of most shareholders, Intevac has now broken into profitability. Since the stock has returned a solid 62% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Like most companies, Intevac does come with some risks, and we've found 2 warning signs that you should be aware of.

While Intevac isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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