ROCE Insights For Wayfair
Wayfair (NYSE: W) posted Q3 earnings of $221.85 million, an increase from Q2 of 26.05%. Sales dropped to $3.84 billion, a 10.8% decrease between quarters. In Q2, Wayfair earned $300.00 million, and total sales reached $4.30 billion.
Why ROCE Is Significant
Changes in earnings and sales indicate shifts in Wayfair’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, Wayfair posted an ROCE of -0.15%.
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.
ROCE is an important metric for the comparison of similar companies. A relatively high ROCE shows Wayfair 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.
For Wayfair, 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.
Q3 Earnings Insight
Wayfair reported Q3 earnings per share at $2.3/share, which beat analyst predictions of $0.8/share.
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