Benzinga | Jan 14, 2021 12:04PM EST

Return On Capital Employed Overview: Applied Materials

Looking at Q4, Applied Materials (NASDAQ:AMAT) earned $1.28 billion, a 15.79% increase from the preceding quarter. Applied Materials also posted a total of $4.69 billion in sales, a 6.67% increase since Q3. Applied Materials earned $1.11 billion, and sales totaled $4.39 billion in Q3.

Why ROCE Is Significant

Changes in earnings and sales indicate shifts in Applied Materials'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 Q4, Applied Materials posted an ROCE of 0.12%.

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

Q4 Earnings Insight

Applied Materials reported Q4 earnings per share at $1.25/share, which beat analyst predictions of $1.17/share.