There Are Reasons To Feel Uneasy About NextEra Energy's (NYSE:NEE) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at NextEra Energy (NYSE:NEE) and its ROCE trend, we weren't exactly thrilled.

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Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for NextEra Energy, this is the formula:

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

0.045 = US$7.6b ÷ (US$194b - US$23b) (Based on the trailing twelve months to March 2025).

Therefore, NextEra Energy has an ROCE of 4.5%. On its own, that's a low figure but it's around the 5.1% average generated by the Electric Utilities industry.

Check out our latest analysis for NextEra Energy

In the above chart we have measured NextEra Energy's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for NextEra Energy .

The Trend Of ROCE

When we looked at the ROCE trend at NextEra Energy, we didn't gain much confidence. To be more specific, ROCE has fallen from 5.6% over the last five years. However it looks like NextEra Energy might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From NextEra Energy's ROCE

In summary, NextEra Energy is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And with the stock having returned a mere 37% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you'd like to know more about NextEra Energy, we've spotted 2 warning signs, and 1 of them is a bit unpleasant.

While NextEra Energy 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.