Our Take On The Returns On Capital At M.I.TECHLtd (KOSDAQ:179290)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at M.I.TECHLtd (KOSDAQ:179290) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for M.I.TECHLtd, this is the formula:

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

0.088 = ₩5.0b ÷ (₩65b - ₩8.4b) (Based on the trailing twelve months to September 2020).

Therefore, M.I.TECHLtd has an ROCE of 8.8%. Ultimately, that's a low return and it under-performs the Medical Equipment industry average of 13%.

See our latest analysis for M.I.TECHLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for M.I.TECHLtd's ROCE against it's prior returns. If you're interested in investigating M.I.TECHLtd's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is M.I.TECHLtd's ROCE Trending?

In terms of M.I.TECHLtd's historical ROCE trend, it doesn't exactly demand attention. Over the past three years, ROCE has remained relatively flat at around 8.8% and the business has deployed 144% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

As we've seen above, M.I.TECHLtd's returns on capital haven't increased but it is reinvesting in the business. Although the market must be expecting these trends to improve because the stock has gained 17% over the last year. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you'd like to know about the risks facing M.I.TECHLtd, we've discovered 2 warning signs that you should be aware of.

While M.I.TECHLtd 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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This article by Simply Wall St is general in nature. 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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