KLA, a leading entity in the semiconductor industry, has been illustrating an optimistic financial trajectory, as reflected in its Return on Capital Employed (ROCE) trends. The metric, commonly used to measure a firm's profitability and capital utilization efficiency, indicates a promising future for KLA. An upward trend in ROCE, paired with growing capital employment, signifies a business adept at reinvesting its profits at increasing rates of return.
The ROCE for KLA is calculated using the formula: Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities). As of the trailing twelve months to June 2023, KLA's ROCE stands at a notable 39%, computed as US$4.0b ÷ (US$14b - US$3.7b). This figure not only represents an exceptional return in absolute terms but also outperforms the semiconductor industry's average of 12%.
Over the past five years, KLA's ROCE has remained relatively stable around 39%. Concurrently, the company has augmented its capital deployment into operations by 133%. This consistent high return rate, coupled with significant reinvestment, is a commendable achievement in the corporate sphere. If these trends continue, KLA could potentially become a multi-bagger.
Furthermore, KLA's stock performance has been impressive, providing a 385% return over the past five years. These robust returns have surely gratified long-term investors. Despite the stock being perceived as more "expensive" than before, it is believed that KLA's strong fundamentals warrant further investigation.
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