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Looking Into GameStop's Return On Capital Employed

Benzinga Insights
·2 mins read

During Q2, GameStop (NYSE: GME) brought in sales totaling $942.00 million. However, earnings decreased 10.28%, resulting in a loss of $96.90 million. GameStop collected $1.02 billion in revenue during Q1, but reported earnings showed a $108.00 million loss.

Why ROCE Is Significant

Return on Capital Employed is a measure of yearly pre-tax profit relative to capital employed in a business. Changes in earnings and sales indicate shifts in a company's ROCE. A higher ROCE is generally representative of successful growth in a company and is a sign of higher earnings per share for shareholders in the future. A low or negative ROCE suggests the opposite. In Q2, GameStop posted an ROCE of -0.28%.

Keep in mind, while ROCE is a good measure of a company's recent performance, it is not a highly reliable predictor of a company's earnings or sales in the near future.

View more earnings on GME

ROCE is an important metric for the comparison of similar companies. A relatively high ROCE shows GameStop 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 GameStop, 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 Recap

GameStop reported Q2 earnings per share at $-1.4/share, which did not meet analyst predictions of $-1.13/share.

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