Capital allocation trends at Valero Energy (NYSE: VLO) are not ideal


If we are looking to avoid a business in decline, what are the trends that can alert us upstream? When we see a drop to return to on capital employed (ROCE) in connection with a decrease based capital employed is often how a mature business shows signs of aging. Basically, the business earns less on its investments and it also reduces its total assets. That said, after a brief glimpse, Valero Energy (NYSE: VLO) We’re not optimistic, but let’s dig deeper.

Return on capital employed (ROCE): what is it?

For those who don’t know, ROCE is a measure of a company’s annual pre-tax profit (its return), relative to the capital employed in the company. Analysts use this formula to calculate it for Valero Energy:

Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)

0.0041 = US $ 166 million ÷ (US $ 55 billion – US $ 14 billion) (Based on the last twelve months up to September 2021).

Thereby, Valero Energy has a ROCE of 0.4%. In absolute terms, that’s a low return, and it’s also below the oil and gas industry average of 9.2%.

Check out our latest analysis for Valero Energy

NYSE: VLO Return on Capital Employed December 24, 2021

Above you can see how Valero Energy’s current ROCE compares to its previous returns on capital, but there isn’t much you can say about the past. If you are interested, you can view analyst forecasts in our free analyst forecast report for the company.

What can we say about the ROCE trend of Valero Energy?

In terms of Valero Energy’s historic ROCE movements, the trend does not inspire confidence. Unfortunately, returns on capital have fallen from the 9.6% they earned five years ago. In addition to this, it should be noted that the amount of capital employed within the company has remained relatively stable. Companies that exhibit these attributes tend not to shrink, but they can be mature and face pressure on their competitive margins. If these trends continue, we don’t expect Valero Energy to turn into a multi-bagger.

Valero Energy’s ROCE result

In summary, it is unfortunate that Valero Energy generates lower returns from the same amount of capital. Despite this, the stock offered a 32% return to shareholders who have owned it for the past five years. Either way, we’re not big fans of current trends so we think you might find better investments elsewhere.

On a final note, we found 2 warning signs for Valero Energy (1 is a little worrying) you should be aware of.

If you want to look for solid businesses with great income, check out this free list of companies with good balance sheets and impressive returns on equity.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.


Source link

Previous STOXX LIVE MARKETS flat in thin trade
Next FinCEN Calls for Comments on Modernization of AML / CFT Regime | Ballard Spahr srl