Return On Capital Employed Overview: Ralph Lauren
Ralph Lauren (NYSE: RL) reported Q1 sales of $487.50 million. Earnings fell to a loss of $168.00 million, resulting in a 40.8% decrease from last quarter. Ralph Lauren collected $1.27 billion in revenue during Q4, but reported earnings showed a $283.80 million loss.
Why ROCE Is Significant
Changes in earnings and sales indicate shifts in Ralph Lauren’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 Q1, Ralph Lauren posted an ROCE of -0.07%.
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.
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 Ralph Lauren, 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.
Q1 Earnings Insight
Ralph Lauren reported Q1 earnings per share at $-1.82/share, which did not meet analyst predictions of $-1.72/share.
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