Returns On Capital At Beijing Enterprises Holdings (HKG:392) Have Stalled

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Beijing Enterprises Holdings (HKG:392) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Beijing Enterprises Holdings is:

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

0.02 = HK$3.3b ÷ (HK$221b - HK$58b) (Based on the trailing twelve months to December 2022).

Therefore, Beijing Enterprises Holdings has an ROCE of 2.0%. In absolute terms, that's a low return and it also under-performs the Gas Utilities industry average of 7.3%.

See our latest analysis for Beijing Enterprises Holdings

Above you can see how the current ROCE for Beijing Enterprises Holdings 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 Holdings here for free.

What Does the ROCE Trend For Beijing Enterprises Holdings Tell Us?

Things have been pretty stable at Beijing Enterprises Holdings, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if Beijing Enterprises Holdings doesn't end up being a multi-bagger in a few years time. With fewer investment opportunities, it makes sense that Beijing Enterprises Holdings has been paying out a decent 31% of its earnings to shareholders. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.

In Conclusion...

In a nutshell, Beijing Enterprises Holdings has been trudging along with the same returns from the same amount of capital over the last five years. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

One final note, you should learn about the 3 warning signs we've spotted with Beijing Enterprises Holdings (including 1 which can't be ignored) .

While Beijing Enterprises 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.