What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Canadian Tire Corporation (TSE:CTC.A), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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. The formula for this calculation on Canadian Tire Corporation is:

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

0.084 = CA$1.3b ÷ (CA$22b - CA$6.7b) (Based on the trailing twelve months to March 2024).

Thus, Canadian Tire Corporation has an ROCE of 8.4%. In absolute terms, that's a low return and it also under-performs the Multiline Retail industry average of 11%.

View our latest analysis for Canadian Tire Corporation

Above you can see how the current ROCE for Canadian Tire Corporation compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Canadian Tire Corporation for free.

So How Is Canadian Tire Corporation's ROCE Trending?

Things have been pretty stable at Canadian Tire Corporation, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if Canadian Tire Corporation doesn't end up being a multi-bagger in a few years time. This probably explains why Canadian Tire Corporation is paying out 49% of its income to shareholders in the form of dividends. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.

Our Take On Canadian Tire Corporation's ROCE

We can conclude that in regards to Canadian Tire Corporation's returns on capital employed and the trends, there isn't much change to report on. And with the stock having returned a mere 14% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.