Here's What Adaptive Plasma Technology's (KOSDAQ:089970) Strong Returns On Capital Means

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. Ergo, when we looked at the ROCE trends at Adaptive Plasma Technology (KOSDAQ:089970), we liked what we saw.

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. The formula for this calculation on Adaptive Plasma Technology is:

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

0.26 = ₩19b ÷ (₩89b - ₩18b) (Based on the trailing twelve months to September 2020).

Therefore, Adaptive Plasma Technology has an ROCE of 26%. That's a fantastic return and not only that, it outpaces the average of 9.8% earned by companies in a similar industry.

Check out our latest analysis for Adaptive Plasma Technology

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Adaptive Plasma Technology has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Adaptive Plasma Technology's ROCE Trend?

In terms of Adaptive Plasma Technology's history of ROCE, it's quite impressive. Over the past one year, ROCE has remained relatively flat at around 26% and the business has deployed 22% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

The Bottom Line On Adaptive Plasma Technology's ROCE

In short, we'd argue Adaptive Plasma Technology has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And the stock has done incredibly well with a 120% return over the last year, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Adaptive Plasma Technology does have some risks, we noticed 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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