BCEG Environmental Remediation (SZSE:300958) Is Reinvesting At Lower Rates Of Return

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at BCEG Environmental Remediation (SZSE:300958) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for BCEG Environmental Remediation, this is the formula:

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

0.02 = CN¥30m ÷ (CN¥3.1b - CN¥1.6b) (Based on the trailing twelve months to June 2024).

So, BCEG Environmental Remediation has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 5.6%.

Check out our latest analysis for BCEG Environmental Remediation

Historical performance is a great place to start when researching a stock so above you can see the gauge for BCEG Environmental Remediation's ROCE against it's prior returns. If you'd like to look at how BCEG Environmental Remediation has performed in the past in other metrics, you can view this free graph of BCEG Environmental Remediation's past earnings, revenue and cash flow.

What Does the ROCE Trend For BCEG Environmental Remediation Tell Us?

On the surface, the trend of ROCE at BCEG Environmental Remediation doesn't inspire confidence. To be more specific, ROCE has fallen from 12% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a related note, BCEG Environmental Remediation has decreased its current liabilities to 52% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money. Keep in mind 52% is still pretty high, so those risks are still somewhat prevalent.

The Bottom Line On BCEG Environmental Remediation's ROCE

To conclude, we've found that BCEG Environmental Remediation is reinvesting in the business, but returns have been falling. And in the last three years, the stock has given away 58% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

One final note, you should learn about the 4 warning signs we've spotted with BCEG Environmental Remediation (including 2 which are concerning) .

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.