What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Axcelis Technologies’ (NASDAQ:ACLS) returns on capital, so let’s have a look.
Return On Capital Employed (ROCE): What is it?
For those who don’t know, ROCE is a measure of a company’s yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Axcelis Technologies, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.17 = US$95m ÷ (US$711m – US$137m) (Based on the trailing twelve months to September 2021).
So, Axcelis Technologies has an ROCE of 17%. In absolute terms, that’s a pretty normal return, and it’s somewhat close to the Semiconductor industry average of 14%.
Above you can see how the current ROCE for Axcelis Technologies 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 Axcelis Technologies here for free.
What Can We Tell From Axcelis Technologies’ ROCE Trend?
The trends we’ve noticed at Axcelis Technologies are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 17%. The company is effectively making more money per dollar of capital used, and it’s worth noting that the amount of capital has increased too, by 128%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that’s why we’re impressed.
Our Take On Axcelis Technologies’ ROCE
To sum it up, Axcelis Technologies has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 364% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
If you want to continue researching Axcelis Technologies, you might be interested to know about the 2 warning signs that our analysis has discovered.
While Axcelis Technologies isn’t earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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