This article is intended for those of you who are at the beginning of your investing journey and looking to gauge the potential return on investment in Bisu Technology Group International Limited (HKG:1372).
Purchasing Bisu Technology Group International gives you an ownership stake in the company. This share represents a portion of capital used by the company to operate the business, and it is important the company is able to use the capital base efficiently to create adequate cash flows for you as an investor. You need to pay attention to this because your return on investment is linked to dividends and internal investments to improve the business, which can only occur if the company is expected to produce adequate earnings with the capital that has been provided. To understand Bisu Technology Group International’s capital returns we will look at a useful metric called return on capital employed. This will tell us if the company is growing your capital and placing you in good stead to sell your shares at a profit.See our latest analysis for Bisu Technology Group International
Calculating Return On Capital Employed for 1372
You only have a finite amount of capital to invest, so there are only so many companies that you can add to your portfolio. Accordingly, before you invest you need to assess the capital returns that the company has produced with reference to a certain benchmark to ensure that you are confident in the business’ ability to grow your capital at a level that grants an investment over other companies. A good metric to use is return on capital employed (ROCE), which helps us gauge how much income can be created from the funds needed to operate the business. This metric will tell us if Bisu Technology Group International is good at growing investor capital. 1372’s ROCE is calculated below:
ROCE Calculation for 1372
Return on Capital Employed (ROCE) = Earnings Before Tax (EBT) ÷ (Capital Employed)
Capital Employed = (Total Assets – Current Liabilities)
∴ ROCE = HK$57.64m ÷ (HK$2.51b – HK$1.24b) = 4.53%
As you can see, 1372 earned HK$4.5 from every HK$100 you invested over the previous twelve months. This shows Bisu Technology Group International provides an unsatisfying capital return that is well below the 15% ROCE that is typically considered to be a strong benchmark. Nevertheless, if 1372 is clever with their reinvestments or dividend payments, investors can still grow their capital although to a poor extent.
What is causing this?
Although Bisu Technology Group International is in an unfavourable position, you should know that this could change if the company is able to increase earnings on the same capital base or find new efficiencies that require less capital to produce earnings. So it is important for investors to understand what is going on under the hood and look at how these variables have been behaving. If you go back three years, you’ll find that 1372’s ROCE has decreased from 10.35%. With this, the current earnings of HK$57.64m improved from HK$23.45m however capital employed has grown by a relatively larger volume because of a rise in total assets , indicating that the previous growth in earnings has not been able to improve ROCE because the company now needs to employ more capital to operate the business.
ROCE for 1372 investors has fallen in the last few years and is currently at a level that makes us question whether the company is capable of providing a suitable return on investment. Before making any decisions, ROCE does not tell the whole picture so you need to pay attention to other fundamentals like future prospects and management ability. Bisu Technology Group International’s fundamentals can be explored with the links I’ve provided below if you are interested, otherwise you can start looking at other high-performing stocks.
- Future Outlook: What are well-informed industry analysts predicting for 1372’s future growth? Take a look at our free research report of analyst consensus for 1372’s outlook.
- Management:Have insiders been ramping up their shares to take advantage of the market’s sentiment for Bisu Technology Group International’s future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.