BES Engineering (TWSE:2515) Is Looking To Continue Growing Its Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Speaking of which, we noticed some great changes in BES Engineering's (TWSE:2515) returns on capital, so let's have a look.

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 BES Engineering, this is the formula:

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

0.026 = NT$973m ÷ (NT$62b - NT$25b) (Based on the trailing twelve months to September 2024).

Thus, BES Engineering has an ROCE of 2.6%. Ultimately, that's a low return and it under-performs the Construction industry average of 12%.

Check out our latest analysis for BES Engineering

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

So How Is BES Engineering's ROCE Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 2.6%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 37%. 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.

The Bottom Line On BES Engineering's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what BES Engineering has. And with a respectable 53% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Like most companies, BES Engineering does come with some risks, and we've found 2 warning signs that you should be aware of.

While BES Engineering isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.