BII Railway Transportation Technology Holdings (HKG:1522) Is Doing The Right Things To Multiply Its Share Price

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. So when we looked at BII Railway Transportation Technology Holdings (HKG:1522) and its trend of ROCE, we really liked what we saw.

What is 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 BII Railway Transportation Technology Holdings, this is the formula:

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

0.073 = HK$194m ÷ (HK$4.5b - HK$1.9b) (Based on the trailing twelve months to June 2021).

So, BII Railway Transportation Technology Holdings has an ROCE of 7.3%. On its own that's a low return, but compared to the average of 5.2% generated by the Software industry, it's much better.

View our latest analysis for BII Railway Transportation Technology Holdings

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

What Can We Tell From BII Railway Transportation Technology Holdings' ROCE Trend?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 7.3%. Basically the business is earning more per dollar of capital invested and in addition to that, 111% more capital is being employed now too. So we're very much inspired by what we're seeing at BII Railway Transportation Technology Holdings thanks to its ability to profitably reinvest capital.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Essentially the business now has suppliers or short-term creditors funding about 41% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.

The Bottom Line On BII Railway Transportation Technology Holdings' ROCE

All in all, it's terrific to see that BII Railway Transportation Technology Holdings is reaping the rewards from prior investments and is growing its capital base. And since the stock has fallen 66% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

Like most companies, BII Railway Transportation Technology Holdings does come with some risks, and we've found 4 warning signs that 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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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.