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Looking Into Cheesecake Factory's Return On Capital Employed

Benzinga Insights
·2 min read

During Q2, Cheesecake Factory (NASDAQ: CAKE) brought in sales totaling $295.85 million. However, earnings decreased 438.6%, resulting in a loss of $191.58 million. Cheesecake Factory reached earnings of $56.58 million and sales of $615.11 million in Q1.

What Is ROCE?

Changes in earnings and sales indicate shifts in Cheesecake Factory’s Return on Capital Employed, a measure of yearly pre-tax profit relative to capital employed in a business. Generally, a higher ROCE suggests successful growth in a company and is a sign of higher earnings per share for shareholders in the future. In Q2, Cheesecake Factory posted an ROCE of -0.46%.

View more earnings on CAKE

It is important to keep in mind ROCE evaluates past performance and is not used as a predictive tool. It is a good measure of a company's recent performance, but several factors could affect earnings and sales in the near future.

ROCE is an important metric for the comparison of similar companies. A relatively high ROCE shows Cheesecake Factory is potentially operating at a higher level of efficiency than other companies in its industry. If the company is generating high profits with its current level of capital, some of that money can be reinvested in more capital which will lead to higher returns and earnings per share growth. For Cheesecake Factory, the return on capital employed ratio shows the current amount of assets may not actually be helping the company achieve higher returns, a note many investors will take into account when making long-term financial decisions.

Q2 Earnings

Cheesecake Factory reported Q2 earnings per share of $-0.87/share against analyst predictions of $-1.09/share.

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