Investors Will Want GE Vernova's (NYSE:GEV) Growth In ROCE To Persist

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at GE Vernova (NYSE:GEV) and its trend of ROCE, we really liked what we saw.

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Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on GE Vernova is:

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

0.074 = US$1.4b ÷ (US$52b - US$33b) (Based on the trailing twelve months to March 2025).

Thus, GE Vernova has an ROCE of 7.4%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 11%.

View our latest analysis for GE Vernova

In the above chart we have measured GE Vernova's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering GE Vernova for free.

So How Is GE Vernova's ROCE Trending?

We're delighted to see that GE Vernova is reaping rewards from its investments and has now broken into profitability. The company now earns 7.4% on its capital, because two years ago it was incurring losses. While returns have increased, the amount of capital employed by GE Vernova has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

On a side note, GE Vernova's current liabilities are still rather high at 63% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On GE Vernova's ROCE

To sum it up, GE Vernova is collecting higher returns from the same amount of capital, and that's impressive. And with the stock having performed exceptionally well over the last year, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to continue researching GE Vernova, you might be interested to know about the 2 warning signs that our analysis has discovered.

While GE Vernova 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.