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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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Canadian Natural Resources (TSE:CNQ) so let's look a bit deeper.
We've discovered 1 warning sign about Canadian Natural Resources. View them for free.
Return On Capital Employed (ROCE): What Is It?
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 Canadian Natural Resources, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = CA$9.7b ÷ (CA$85b - CA$9.6b) (Based on the trailing twelve months to December 2024).
Therefore, Canadian Natural Resources has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 9.2% generated by the Oil and Gas industry.
View our latest analysis for Canadian Natural Resources
Above you can see how the current ROCE for Canadian Natural Resources compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Canadian Natural Resources .
How Are Returns Trending?
Canadian Natural Resources' ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 66% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
Our Take On Canadian Natural Resources' ROCE
To bring it all together, Canadian Natural Resources has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 356% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Canadian Natural Resources can keep these trends up, it could have a bright future ahead.
