What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of Canadian National Railway (TSE:CNR) looks decent, right now, so lets see what the trend of returns can tell us.

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 National Railway, this is the formula:

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

0.14 = CA$7.0b ÷ (CA$54b - CA$4.7b) (Based on the trailing twelve months to September 2024).

So, Canadian National Railway has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 11% generated by the Transportation industry.

See our latest analysis for Canadian National Railway

Above you can see how the current ROCE for Canadian National Railway compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Canadian National Railway .

What Can We Tell From Canadian National Railway's ROCE Trend?

While the returns on capital are good, they haven't moved much. The company has consistently earned 14% for the last five years, and the capital employed within the business has risen 25% in that time. 14% is a pretty standard return, and it provides some comfort knowing that Canadian National Railway has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

What We Can Learn From Canadian National Railway's ROCE

The main thing to remember is that Canadian National Railway has proven its ability to continually reinvest at respectable rates of return. However, over the last five years, the stock has only delivered a 33% return to shareholders who held over that period. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.

If you'd like to know about the risks facing Canadian National Railway, we've discovered 1 warning sign that you should be aware of.

While Canadian National Railway may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.