Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Having said that, from a first glance at Northland Power (TSE:NPI) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Northland Power, this is the formula:

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

0.068 = CA$848m ÷ (CA$14b - CA$1.5b) (Based on the trailing twelve months to March 2024).

So, Northland Power has an ROCE of 6.8%. On its own that's a low return, but compared to the average of 4.6% generated by the Renewable Energy industry, it's much better.

View our latest analysis for Northland Power

Above you can see how the current ROCE for Northland Power 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 Northland Power .

How Are Returns Trending?

The returns on capital haven't changed much for Northland Power in recent years. The company has consistently earned 6.8% for the last five years, and the capital employed within the business has risen 33% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line

As we've seen above, Northland Power's returns on capital haven't increased but it is reinvesting in the business. Unsurprisingly, the stock has only gained 16% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

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

While Northland Power isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.