Beijing Kaiwen Education Technology (SZSE:002659) Shareholders Will Want The ROCE Trajectory To Continue

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. So when we looked at Beijing Kaiwen Education Technology (SZSE:002659) and its trend of ROCE, we really liked what we saw.

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

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 Beijing Kaiwen Education Technology, this is the formula:

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

0.0018 = CN¥5.1m ÷ (CN¥3.0b - CN¥206m) (Based on the trailing twelve months to June 2024).

Thus, Beijing Kaiwen Education Technology has an ROCE of 0.2%. In absolute terms, that's a low return and it also under-performs the Consumer Services industry average of 5.4%.

Check out our latest analysis for Beijing Kaiwen Education Technology

Above you can see how the current ROCE for Beijing Kaiwen Education Technology compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Beijing Kaiwen Education Technology .

The Trend Of ROCE

We're delighted to see that Beijing Kaiwen Education Technology is reaping rewards from its investments and has now broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 0.2% on its capital. While returns have increased, the amount of capital employed by Beijing Kaiwen Education Technology has remained flat over the period. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.

Our Take On Beijing Kaiwen Education Technology's ROCE

To bring it all together, Beijing Kaiwen Education Technology has done well to increase the returns it's generating from its capital employed. And since the stock has fallen 38% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

Beijing Kaiwen Education Technology does have some risks though, and we've spotted 1 warning sign for Beijing Kaiwen Education Technology that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.