Suzano (BVMF:SUZB3) Is Looking To Continue Growing Its Returns On Capital

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Suzano's (BVMF:SUZB3) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on Suzano is:

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

0.13 = R$14b ÷ (R$113b - R$8.9b) (Based on the trailing twelve months to September 2021).

Therefore, Suzano has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Forestry industry average of 14%.

View our latest analysis for Suzano

Above you can see how the current ROCE for Suzano compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Suzano Tell Us?

The trends we've noticed at Suzano are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 13%. Basically the business is earning more per dollar of capital invested and in addition to that, 292% more capital is being employed now too. So we're very much inspired by what we're seeing at Suzano thanks to its ability to profitably reinvest capital.

Our Take On Suzano's ROCE

In summary, it's great to see that Suzano 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 a respectable 47% awarded to those who held the stock over the last three years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Suzano does have some risks, we noticed 3 warning signs (and 1 which is a bit concerning) we think you should know about.

While Suzano 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.