Benzinga | Jul 20, 2020 07:01AM EDT

Return On Capital Employed Overview: Ally Financial

During Q2, Ally Financial (NYSE:ALLY) brought in sales totaling $1.53 billion. However, earnings decreased 107.88%, resulting in a loss of $319.00 million. In Q1, Ally Financial earned $4.05 billion and total sales reached $1.61 billion.

What Is ROCE?

Changes in earnings and sales indicate shifts in Ally Financial'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 Q2, Ally Financial 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.

ROCE is an important metric for the comparison of similar companies. A relatively high ROCE shows Ally Financial 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 lead to higher returns and earnings per share growth.

In Ally Financial's case, the ROCE ratio shows the amount of assets may not be helping the company achieve higher returns. Investors may take this into account before making any long-term financial decisions.

Q2 Earnings

Ally Financial reported Q2 earnings per share at $0.61/share against analyst predictions of $0.18/share.