These Trends Paint A Bright Future For Adobe (NASDAQ:ADBE)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Adobe (NASDAQ:ADBE) looks great, so lets see what the trend can tell us.

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 Adobe, this is the formula:

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

0.23 = US$4.2b ÷ (US$24b - US$5.5b) (Based on the trailing twelve months to November 2020).

Thus, Adobe has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Software industry average of 11%.

See our latest analysis for Adobe

In the above chart we have measured Adobe's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Adobe.

The Trend Of ROCE

Investors would be pleased with what's happening at Adobe. The data shows that returns on capital have increased substantially over the last five years to 23%. The amount of capital employed has increased too, by 97%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On Adobe's ROCE

In summary, it's great to see that Adobe can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 413% 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.

One more thing, we've spotted 1 warning sign facing Adobe that you might find interesting.

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