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Bank of America (NYSE: BAC) posted Q3 earnings of $4.55 billion, an increase from Q2 of 19.66%. Sales dropped to $20.45 billion, a 8.92% decrease between quarters. In Q2, Bank of America brought in $22.45 billion in sales but only earned $3.80 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 Q3, Bank of America posted an ROCE of 0.02%.
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 Bank of America 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 Bank of America's case, the positive ROCE ratio will be something investors pay attention to before making long-term financial decisions.
Q3 Earnings Recap
Bank of America reported Q3 earnings per share at $0.51/share, which beat analyst predictions of $0.49/share.
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