Beijing Enterprises Urban Resources Group (HKG:3718) Is Doing The Right Things To Multiply Its Share Price

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'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Beijing Enterprises Urban Resources Group (HKG:3718) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

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 Beijing Enterprises Urban Resources Group is:

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

0.13 = HK$750m ÷ (HK$7.8b - HK$1.9b) (Based on the trailing twelve months to June 2021).

So, Beijing Enterprises Urban Resources Group has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Commercial Services industry average of 9.0% it's much better.

See our latest analysis for Beijing Enterprises Urban Resources Group

Above you can see how the current ROCE for Beijing Enterprises Urban Resources Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Beijing Enterprises Urban Resources Group here for free.

The Trend Of ROCE

Beijing Enterprises Urban Resources Group is displaying some positive trends. Over the last four years, returns on capital employed have risen substantially to 13%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 335%. So we're very much inspired by what we're seeing at Beijing Enterprises Urban Resources Group thanks to its ability to profitably reinvest capital.

One more thing to note, Beijing Enterprises Urban Resources Group has decreased current liabilities to 25% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Beijing Enterprises Urban Resources Group has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line On Beijing Enterprises Urban Resources Group's ROCE

To sum it up, Beijing Enterprises Urban Resources Group has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Although the company may be facing some issues elsewhere since the stock has plunged 79% in the last year. Still, it's worth doing some further research to see if the trends will continue into the future.

Beijing Enterprises Urban Resources Group does have some risks, we noticed 2 warning signs (and 1 which shouldn't be ignored) we think you should 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.

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.

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