Beijing Enterprises Urban Resources Group (HKG:3718) Shareholders Will Want The ROCE Trajectory To Continue

If you're looking for a multi-bagger, there's a few things to keep an eye out 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. So when we looked at Beijing Enterprises Urban Resources Group (HKG:3718) and its trend of ROCE, we really liked what we saw.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from 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)

0.15 = HK$704m ÷ (HK$7.1b - HK$2.3b) (Based on the trailing twelve months to December 2020).

Therefore, Beijing Enterprises Urban Resources Group has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 9.3% generated by the Commercial Services industry.

See our latest analysis for Beijing Enterprises Urban Resources Group

In the above chart we have measured Beijing Enterprises Urban Resources Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Beijing Enterprises Urban Resources Group here for free.

What Does the ROCE Trend For Beijing Enterprises Urban Resources Group Tell Us?

Beijing Enterprises Urban Resources Group is displaying some positive trends. Over the last four years, returns on capital employed have risen substantially to 15%. Basically the business is earning more per dollar of capital invested and in addition to that, 365% more capital is being employed now too. 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.

What We Can Learn From Beijing Enterprises Urban Resources Group's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Beijing Enterprises Urban Resources Group has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 75% return over the last year. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Beijing Enterprises Urban Resources Group does have some risks, we noticed 3 warning signs (and 1 which can'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.

If you’re looking to trade Beijing Enterprises Urban Resources Group, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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