Market Cap | 26.85 B | P/E(ttm) | 7.40 |
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Enterprise Value | 28.95 B | P/B | 1.30 |
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Return on capital measures how well a company generates cash flow relative to the capital it has invested in its business. It is also called Return on Invested Capital (ROIC). Valero Energy Corp's annualized return on capital (ROC) for the quarter that ended in Sep. 2014 was 19.54%.
As of today, Valero Energy Corp's weighted average cost Of capital is 14.04%. Valero Energy Corp's return on capital is 16.94%. Valero Energy Corp generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases.
Valero Energy Corp's annualized Return on Capital (ROC) for the fiscal year that ended in Dec. 2013 is calculated as:
Return on Capital (ROC) | (A: Dec. 2013 ) | |||||
= | NOPAT | / | Average Invested Capital | |||
= | Oper. Inc.*(1-Tax Rate) | / | ( (Invested Capital (A: Dec. 2012 ) | + | Invested Capital (A: Dec. 2013 )) | /2) |
= | 3963 * ( 1 - 31.49% ) | / | ( (23358 | + | 21732) | /2) |
= | 2715.0513 | / | 22545 | |||
= | 12.04 % |
where
Invested Capital | (A: Dec. 2012 ) | ||||||
= | Book Value of Debt | + | Book Value of Equity | - | Cash | ||
= | Long-Term Debt | + | Short-Term Debt | + | Total Equity | - | Cash |
= | 6463 | + | 586 | + | 18032 | - | 1723 |
= | 23358 |
Invested Capital | (A: Dec. 2013 ) | ||||||
= | Book Value of Debt | + | Book Value of Equity | - | Cash | ||
= | Long-Term Debt | + | Short-Term Debt | + | Total Equity | - | Cash |
= | 6261 | + | 303 | + | 19460 | - | 4292 |
= | 21732 |
Valero Energy Corp's annualized Return on Capital (ROC) for the quarter that ended in Sep. 2014 is calculated as:
Return on Capital (ROC) | (Q: Sep. 2014 ) | |||||
= | NOPAT | / | Average Invested Capital | |||
= | Oper. Inc.*(1-Tax Rate) | / | ( (Invested Capital (Q: Jun. 2014 ) | + | Invested Capital (Q: Sep. 2014 )) | /2) |
= | 6680 * ( 1 - 32.91% ) | / | ( (23116 | + | 22746) | /2) |
= | 4481.612 | / | 22931 | |||
= | 19.54 % |
where
Invested Capital | (Q: Jun. 2014 ) | ||||||
= | Book Value of Debt | + | Book Value of Equity | - | Cash | ||
= | Long-Term Debt | + | Short-Term Debt | + | Total Equity | - | Cash |
= | 5784 | + | 601 | + | 20211 | - | 3480 |
= | 23116 |
Invested Capital | (Q: Sep. 2014 ) | ||||||
= | Book Value of Debt | + | Book Value of Equity | - | Cash | ||
= | Long-Term Debt | + | Short-Term Debt | + | Total Equity | - | Cash |
= | 5783 | + | 600 | + | 20554 | - | 4191 |
= | 22746 |
Note: The Operating Income data used here is four times the quarterly (Sep. 2014) operating income data.
* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.
Return on Capital measures how well a company generates cash flow relative to the capital it has invested in its business. It is also called Return on Invested Capital. The reason book values of debt and equity are used is because the book values are the capital the company received when issuing the debt or receiving the equity investments.
There are four key components to this definition. The first is the use of operating income rather than net income in the numerator. The second is the tax adjustment to this operating income, computed as a hypothetical tax based on an effective or marginal tax rate. The third is the use of book values for invested capital, rather than market values. The final is the timing difference; the capital invested is from the end of the prior year whereas the operating income is the current years number.
Why is Return on Capital important?
Because it costs money to raise capital. A firm that generates higher returns on investment than it costs the company to raise the capital needed for that investment is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases, whereas a firm that earns returns that do not match up to its cost of capital will destroy value as it grows.
As of today, Valero Energy Corp's weighted average cost Of capital is 14.04%. Valero Energy Corp's return on capital is 16.94%. Valero Energy Corp generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases.
Like ROE and ROA, ROC is calculated with only 12 months of data. Fluctuations in the companys earnings or business cycles can affect the ratio drastically. It is important to look at the ratio from a long term perspective.
Return on Invested Capital, Return on Equity, Return on Assets, Return on Capital (Joel Greenblatt)
* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.
Valero Energy Corp Annual Data
Dec04 | Dec05 | Dec06 | Dec07 | Dec08 | Dec09 | Dec10 | Dec11 | Dec12 | Dec13 | |
ROC | 19.02 | 23.00 | 24.56 | 20.86 | -6.62 | -0.21 | 5.59 | 10.76 | 9.68 | 12.04 |
Valero Energy Corp Quarterly Data
Jun12 | Sep12 | Dec12 | Mar13 | Jun13 | Sep13 | Dec13 | Mar14 | Jun14 | Sep14 | |
ROC | 15.90 | 12.90 | 18.57 | 11.94 | 8.93 | 6.85 | 19.98 | 16.02 | 12.41 | 19.54 |