If you're looking for a multi-bagger, there's a few things to 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 on that note, Franco-Nevada (TSE:FNV) looks quite promising in regards to its trends of return on capital.

Our free stock report includes 1 warning sign investors should be aware of before investing in Franco-Nevada. Read for free now.

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

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. Analysts use this formula to calculate it for Franco-Nevada:

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

0.12 = US$724m ÷ (US$6.3b - US$68m) (Based on the trailing twelve months to December 2024).

So, Franco-Nevada has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 3.9% generated by the Metals and Mining industry.

Check out our latest analysis for Franco-Nevada

In the above chart we have measured Franco-Nevada'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 Franco-Nevada for free.

What The Trend Of ROCE Can Tell Us

Franco-Nevada has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 47% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On Franco-Nevada's ROCE

To bring it all together, Franco-Nevada has done well to increase the returns it's generating from its capital employed. Since the stock has only returned 40% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

Franco-Nevada does have some risks though, and we've spotted 1 warning sign for Franco-Nevada that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.