Returns on Capital Paint A Bright Future For Vital Energy (CVE:VUX)

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Vital Energy (CVE:VUX) we really liked what we saw.

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What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Vital Energy, this is the formula:

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

0.26 = CA$5.4m ÷ (CA$37m - CA$16m) (Based on the trailing twelve months to June 2025).

So, Vital Energy has an ROCE of 26%. That's a fantastic return and not only that, it outpaces the average of 9.5% earned by companies in a similar industry.

Check out our latest analysis for Vital Energy

Historical performance is a great place to start when researching a stock so above you can see the gauge for Vital Energy's ROCE against it's prior returns. If you'd like to look at how Vital Energy has performed in the past in other metrics, you can view this free graph of Vital Energy's past earnings, revenue and cash flow.

What Can We Tell From Vital Energy's ROCE Trend?

Vital Energy is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 26%. 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 80%. So we're very much inspired by what we're seeing at Vital Energy thanks to its ability to profitably reinvest capital.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 44% of the business, which is more than it was five years ago. And with current liabilities at those levels, that's pretty high.

In Conclusion...

In summary, it's great to see that Vital Energy can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 200% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Vital Energy does have some risks, we noticed 4 warning signs (and 3 which are a bit concerning) we think you should know about.

Vital Energy is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.