Here's What To Make Of Vibra Energia's (BVMF:VBBR3) Decelerating Rates Of Return

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Vibra Energia (BVMF:VBBR3), it didn't seem to tick all of these boxes.

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 Vibra Energia, this is the formula:

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

0.091 = R$2.8b ÷ (R$41b - R$9.6b) (Based on the trailing twelve months to September 2023).

So, Vibra Energia has an ROCE of 9.1%. In absolute terms, that's a low return, but it's much better than the Specialty Retail industry average of 7.4%.

See our latest analysis for Vibra Energia

Above you can see how the current ROCE for Vibra Energia compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Vibra Energia.

So How Is Vibra Energia's ROCE Trending?

There are better returns on capital out there than what we're seeing at Vibra Energia. The company has employed 58% more capital in the last five years, and the returns on that capital have remained stable at 9.1%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Our Take On Vibra Energia's ROCE

In conclusion, Vibra Energia has been investing more capital into the business, but returns on that capital haven't increased. Unsurprisingly, the stock has only gained 21% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Vibra Energia does have some risks though, and we've spotted 3 warning signs for Vibra Energia that you might be interested in.

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.