Besunyen Holdings (HKG:926) Is Experiencing Growth In Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. So on that note, Besunyen Holdings (HKG:926) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Besunyen Holdings, this is the formula:

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

0.025 = CN¥34m ÷ (CN¥1.8b - CN¥396m) (Based on the trailing twelve months to June 2021).

So, Besunyen Holdings has an ROCE of 2.5%. Ultimately, that's a low return and it under-performs the Food industry average of 9.8%.

View our latest analysis for Besunyen Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Besunyen Holdings' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Besunyen Holdings, check out these free graphs here.

How Are Returns Trending?

Besunyen Holdings has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 2.5% on its capital. In addition to that, Besunyen Holdings is employing 25% more capital than previously which is expected of a company that's trying to break into profitability. 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 Conclusion...

To the delight of most shareholders, Besunyen Holdings has now broken into profitability. And since the stock has fallen 43% over the last five years, there might be an opportunity here. 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 Besunyen Holdings (1 is concerning) you should be aware of.

While Besunyen Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.