Slowing Yields at Canadian National Railway Company (TSE:CNR) Leave Little Room for Excitement

To find a multi-bagger stock, what underlying trends should we look for in a company? First, we would like to identify a growth to return to on capital employed (ROCE) and at the same time, a base capital employed. If you see this, it usually means it’s a company with a great business model and lots of profitable reinvestment opportunities. With this in mind, the ROCE of Canadian National Railway (IS: CNR) looks decent, right now, so let’s see what the yield trend can tell us.

Return on capital employed (ROCE): what is it?

For those who don’t know what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital used in its business. To calculate this metric for Canadian National Railways, here is the formula:

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

0.15 = C$6.6 billion ÷ (C$48 billion – C$3.8 billion) (Based on the last twelve months to March 2022).

Thereby, Canadian National Railways has a 15% ROI. In absolute terms, that’s a decent return, but compared to the transportation industry average of 10%, it’s much better.

Check out our latest analysis for Canadian National Railways

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Above, you can see how Canadian National Railway’s current ROIC compares to its past returns on capital, but there’s little you can say about the past. If you want to see what analysts predict for the future, you should check out our free report for Canadian National Railways.

What is the return trend?

The ROCE trend isn’t showing much, but overall returns are decent. Over the past five years, ROCE has remained relatively stable at around 15% and the company has deployed 30% more capital into its operations. Since 15% is a moderate ROCE, it’s good to see that a company can continue to reinvest at these decent rates of return. Stable returns in this stage can be unexciting, but if they can be sustained over the long term, they often offer handsome rewards to shareholders.

Canadian National Railway ROI Basics

The main thing to remember is that the Canadian National Railway Company has proven its ability to continually reinvest at respectable rates of return. And the stock has followed suit, returning 51% to shareholders over the past five years. So while the positive underlying trends can be explained by investors, we still think this stock deserves further investigation.

Like most businesses, Canadian National Railway involves certain risks, and we have found 2 warning signs of which you should be aware.

Although Canadian National Railway does not currently generate the highest returns, we have compiled a list of companies that currently generate more than 25% return on equity. look at this free list here.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.