Returns At Beiken Energy Group (SZSE:002828) Are On The Way Up

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. So on that note, Beiken Energy Group (SZSE:002828) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Beiken Energy Group is:

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

0.076 = CN¥47m ÷ (CN¥1.8b - CN¥1.1b) (Based on the trailing twelve months to September 2024).

Therefore, Beiken Energy Group has an ROCE of 7.6%. On its own that's a low return, but compared to the average of 5.2% generated by the Energy Services industry, it's much better.

Check out our latest analysis for Beiken Energy Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Beiken Energy Group's ROCE against it's prior returns. If you're interested in investigating Beiken Energy Group's past further, check out this free graph covering Beiken Energy Group's past earnings, revenue and cash flow.

How Are Returns Trending?

You'd find it hard not to be impressed with the ROCE trend at Beiken Energy Group. We found that the returns on capital employed over the last five years have risen by 298%. The company is now earning CN¥0.08 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 47% less than it was five years ago, which can be indicative of a business that's improving its efficiency. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

Another thing to note, Beiken Energy Group has a high ratio of current liabilities to total assets of 65%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

From what we've seen above, Beiken Energy Group has managed to increase it's returns on capital all the while reducing it's capital base. Astute investors may have an opportunity here because the stock has declined 20% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One final note, you should learn about the 4 warning signs we've spotted with Beiken Energy Group (including 2 which make us uncomfortable) .

While Beiken Energy Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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.