Returns On Capital Are Showing Encouraging Signs At Beijing Jingcheng Machinery Electric (HKG:187)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Beijing Jingcheng Machinery Electric (HKG:187) so let's look a bit deeper.

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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. Analysts use this formula to calculate it for Beijing Jingcheng Machinery Electric:

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

0.014 = CN¥30m ÷ (CN¥3.0b - CN¥881m) (Based on the trailing twelve months to June 2025).

So, Beijing Jingcheng Machinery Electric has an ROCE of 1.4%. Ultimately, that's a low return and it under-performs the Machinery industry average of 7.8%.

View our latest analysis for Beijing Jingcheng Machinery Electric

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Beijing Jingcheng Machinery Electric has performed in the past in other metrics, you can view this free graph of Beijing Jingcheng Machinery Electric's past earnings, revenue and cash flow.

What Can We Tell From Beijing Jingcheng Machinery Electric's ROCE Trend?

We're delighted to see that Beijing Jingcheng Machinery Electric is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 1.4% on its capital. And unsurprisingly, like most companies trying to break into the black, Beijing Jingcheng Machinery Electric is utilizing 106% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 29%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Beijing Jingcheng Machinery Electric has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

In Conclusion...

To the delight of most shareholders, Beijing Jingcheng Machinery Electric has now broken into profitability. And a remarkable 297% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Beijing Jingcheng Machinery Electric can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 1 warning sign for Beijing Jingcheng Machinery Electric you'll probably want to know about.

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.

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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.