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Air Products & Chemicals (NYSE:APD) posted a 3.77% decrease in earnings from Q4. Sales, however, increased by 2.37% over the previous quarter to $2.38 billion. Despite the increase in sales this quarter, the decrease in earnings may suggest Air Products & Chemicals is not utilizing their capital as effectively as possible. In Q4, Air Products & Chemicals earned $560.20 million and total sales reached $2.32 billion.
What Is ROCE?
Return on Capital Employed is a measure of yearly pre-tax profit relative to capital employed by a business. Changes in earnings and sales indicate shifts in a company's ROCE. A higher ROCE is generally representative of successful growth of a company and is a sign of higher earnings per share in the future. A low or negative ROCE suggests the opposite. In Q1, Air Products & Chemicals posted an ROCE of 0.04%.
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.
Return on Capital Employed is an important measurement of efficiency and a useful tool when comparing companies that operate in the same industry. A relatively high ROCE indicates a company may be generating profits that can be reinvested into more capital, leading to higher returns and growing EPS for shareholders.
For Air Products & Chemicals, the return on capital employed ratio shows the number of assets can actually help the company achieve higher returns, an important note investors will take into account when gauging the payoff from long-term financing strategies.
Q1 Earnings Recap
Air Products & Chemicals reported Q1 earnings per share at $2.12/share, which did not meet analyst predictions of $2.19/share.
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