Beijing Energy International Holding (HKG:686) May Have Issues Allocating Its Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Beijing Energy International Holding (HKG:686), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Beijing Energy International Holding, this is the formula:

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

0.035 = CN¥2.5b ÷ (CN¥102b - CN¥32b) (Based on the trailing twelve months to June 2024).

So, Beijing Energy International Holding has an ROCE of 3.5%. Ultimately, that's a low return and it under-performs the Renewable Energy industry average of 6.9%.

View our latest analysis for Beijing Energy International Holding

Historical performance is a great place to start when researching a stock so above you can see the gauge for Beijing Energy International Holding's ROCE against it's prior returns. If you're interested in investigating Beijing Energy International Holding's past further, check out this free graph covering Beijing Energy International Holding's past earnings, revenue and cash flow.

How Are Returns Trending?

When we looked at the ROCE trend at Beijing Energy International Holding, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 3.5% from 5.9% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line On Beijing Energy International Holding's ROCE

While returns have fallen for Beijing Energy International Holding in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And there could be an opportunity here if other metrics look good too, because the stock has declined 58% in the last five years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

If you want to continue researching Beijing Energy International Holding, you might be interested to know about the 1 warning sign that our analysis has discovered.

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.

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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.