Returns At Beijing Enterprises Urban Resources Group (HKG:3718) Are On The Way Up

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Beijing Enterprises Urban Resources Group (HKG:3718) looks quite promising in regards to its trends of return on capital.

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

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 Enterprises Urban Resources Group:

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

0.15 = HK$708m ÷ (HK$7.1b - HK$2.3b) (Based on the trailing twelve months to December 2020).

So, 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 9.1% 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.

The Trend Of ROCE

The trends we've noticed at Beijing Enterprises Urban Resources Group are quite reassuring. The numbers show that in the last four years, the returns generated on capital employed have grown considerably to 15%. The amount of capital employed has increased too, by 365%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take 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. Astute investors may have an opportunity here because the stock has declined 38% in the last year. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a final note, we found 3 warning signs for Beijing Enterprises Urban Resources Group (1 is a bit concerning) you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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