Natura Cosméticos (BVMF:NATU3) Is Experiencing Growth In Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Natura Cosméticos (BVMF:NATU3) so let's look a bit deeper.

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Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for Natura Cosméticos, this is the formula:

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

0.068 = R$1.5b ÷ (R$29b - R$7.5b) (Based on the trailing twelve months to September 2025).

Therefore, Natura Cosméticos has an ROCE of 6.8%. Ultimately, that's a low return and it under-performs the Personal Products industry average of 11%.

View our latest analysis for Natura Cosméticos

Above you can see how the current ROCE for Natura Cosméticos 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 analyst report for Natura Cosméticos .

How Are Returns Trending?

You'd find it hard not to be impressed with the ROCE trend at Natura Cosméticos. We found that the returns on capital employed over the last five years have risen by 183%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Interestingly, the business may be becoming more efficient because it's applying 55% less capital than it was five years ago. Natura Cosméticos may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

In Conclusion...

In a nutshell, we're pleased to see that Natura Cosméticos has been able to generate higher returns from less capital. And since the stock has dived 85% over the last five years, there may be other factors affecting the company's prospects. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

One final note, you should learn about the 2 warning signs we've spotted with Natura Cosméticos (including 1 which makes us a bit uncomfortable) .

While Natura Cosméticos 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.