ROCE Insights For Baker Hughes
Baker Hughes (NYSE:BKR) posted a 471.43% decrease in earnings from Q3. Sales, however, increased by 8.83% over the previous quarter to $5.50 billion. Despite the increase in sales this quarter, the decrease in earnings may suggest Baker Hughes is not utilizing their capital as effectively as possible. In Q3, Baker Hughes brought in $5.05 billion in sales but lost $49.00 million in earnings.
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 Q4, Baker Hughes posted an ROCE of 0.01%.
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.
ROCE is an important metric for the comparison of similar companies. A relatively high ROCE shows Baker Hughes 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 generally lead to higher returns and earnings per share growth.
In Baker Hughes's case, the positive ROCE ratio will be something investors pay attention to before making long-term financial decisions.
Q4 Earnings Recap
Baker Hughes reported Q4 earnings per share at $-0.07/share, which did not meet analyst predictions of $0.17/share.
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