Benzinga | Nov 6, 2020 10:36AM EST

Looking Into Zillow Group's Return On Capital Employed

Zillow Group (NASDAQ:Z) posted Q3 earnings of $76.45 million, an increase from Q2 of 221.95%. Sales dropped to $656.69 million, a 14.53% decrease between quarters. Zillow Group collected $768.35 million in revenue during Q2, but reported earnings showed a $62.69 million loss.

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, Zillow Group 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 Zillow Group 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 Zillow Group's case, the positive ROCE ratio will be something investors pay attention to before making long-term financial decisions.

Q3 Earnings Recap

Zillow Group reported Q3 earnings per share at $0.37/share, which beat analyst predictions of $0.12/share.