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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.
Why ROCE Is Significant
Changes in earnings and sales indicate shifts in Bank of America’s Return on Capital Employed, a measure of yearly pre-tax profit relative to capital employed by a business. Generally, a higher ROCE suggests successful growth of a company and is a sign of higher earnings per share in the future. In Q3, Bank of America posted an ROCE of 0.02%.
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.
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 Insight
Bank of America reported Q3 earnings per share at $0.51/share, which beat analyst predictions of $0.49/share.
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