Why The 21% Return On Capital At Canaf Investments (CVE:CAF) Should Have Your Attention

What trends should we look for it we want to identify stocks that can 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of Canaf Investments (CVE:CAF) looks great, so lets see what the trend can tell us.

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What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Canaf Investments:

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

0.21 = CA$2.9m ÷ (CA$17m - CA$3.4m) (Based on the trailing twelve months to January 2025).

Therefore, Canaf Investments has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 3.8% earned by companies in a similar industry.

View our latest analysis for Canaf Investments

Historical performance is a great place to start when researching a stock so above you can see the gauge for Canaf Investments' ROCE against it's prior returns. If you'd like to look at how Canaf Investments has performed in the past in other metrics, you can view this free graph of Canaf Investments' past earnings, revenue and cash flow.

So How Is Canaf Investments' ROCE Trending?

Canaf Investments is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 21%. Basically the business is earning more per dollar of capital invested and in addition to that, 159% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line

In summary, it's great to see that Canaf Investments can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Canaf Investments can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Canaf Investments, we've discovered 2 warning signs that you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.