Beijing Liven TechnologyLtd (SZSE:001259) Will Want To Turn Around Its Return Trends

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Beijing Liven TechnologyLtd (SZSE:001259), we don't think it's current trends fit the mold of a multi-bagger.

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. The formula for this calculation on Beijing Liven TechnologyLtd is:

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

0.0033 = CN¥2.4m ÷ (CN¥803m - CN¥67m) (Based on the trailing twelve months to September 2024).

So, Beijing Liven TechnologyLtd has an ROCE of 0.3%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 9.6%.

Check out our latest analysis for Beijing Liven TechnologyLtd

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

So How Is Beijing Liven TechnologyLtd's ROCE Trending?

On the surface, the trend of ROCE at Beijing Liven TechnologyLtd doesn't inspire confidence. To be more specific, ROCE has fallen from 20% over the last five years. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

On a side note, Beijing Liven TechnologyLtd has done well to pay down its current liabilities to 8.3% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

The Key Takeaway

From the above analysis, we find it rather worrisome that returns on capital and sales for Beijing Liven TechnologyLtd have fallen, meanwhile the business is employing more capital than it was five years ago. And, the stock has remained flat over the last year, so investors don't seem too impressed either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

On a final note, we've found 3 warning signs for Beijing Liven TechnologyLtd that we think you should be aware of.

While Beijing Liven TechnologyLtd 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. 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.