Capital Investments At Beijing United Information TechnologyLtd (SHSE:603613) Point To A Promising Future

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. With that in mind, the ROCE of Beijing United Information TechnologyLtd (SHSE:603613) looks attractive right now, so lets see what the trend of returns can tell us.

Return On Capital Employed (ROCE): What Is It?

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 Beijing United Information TechnologyLtd, this is the formula:

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

0.23 = CN¥2.1b ÷ (CN¥16b - CN¥6.7b) (Based on the trailing twelve months to September 2024).

So, Beijing United Information TechnologyLtd has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Trade Distributors industry average of 5.0%.

See our latest analysis for Beijing United Information TechnologyLtd

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 Beijing United Information TechnologyLtd has performed in the past in other metrics, you can view this free graph of Beijing United Information TechnologyLtd's past earnings, revenue and cash flow.

The Trend Of ROCE

Beijing United Information TechnologyLtd deserves to be commended in regards to it's returns. Over the past five years, ROCE has remained relatively flat at around 23% and the business has deployed 766% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. You'll see this when looking at well operated businesses or favorable business models.

Another thing to note, Beijing United Information TechnologyLtd has a high ratio of current liabilities to total assets of 42%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On Beijing United Information TechnologyLtd's ROCE

In summary, we're delighted to see that Beijing United Information TechnologyLtd has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you want to know some of the risks facing Beijing United Information TechnologyLtd we've found 2 warning signs (1 is a bit unpleasant!) that you should be aware of before investing here.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.