We Like These Underlying Return On Capital Trends At Canadian Natural Resources (TSE:CNQ)

There are a few key trends to look for if we want to identify the next multi-bagger. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Canadian Natural Resources (TSE:CNQ) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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$8.8b ÷ (CA$76b - CA$8.3b) (Based on the trailing twelve months to September 2023).

Thus, Canadian Natural Resources has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 9.8% generated by the Oil and Gas industry.

Check out 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'd like to see what analysts are forecasting going forward, you should check out our free report for Canadian Natural Resources.

What Can We Tell From Canadian Natural Resources' ROCE Trend?

Canadian Natural Resources' ROCE growth is quite impressive. 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 54% over the last five years. 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. 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.

Our Take On Canadian Natural Resources' ROCE

In summary, we're delighted to see that Canadian Natural Resources has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And a remarkable 194% total return over the last five years tells us that investors are expecting more good things to come in the future. 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.

If you want to continue researching Canadian Natural Resources, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Canadian Natural Resources 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.