Benzinga | Feb 5, 2021 10:38AM EST

ROCE Insights For Dollar General

Dollar General (NYSE:DG) posted Q3 earnings of $773.13 million, an increase from Q2 of 25.85%. Sales dropped to $8.20 billion, a 5.57% decrease between quarters. Dollar General earned $1.04 billion, and sales totaled $8.68 billion in Q2.

Why ROCE Is Significant

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, Dollar General posted an ROCE of 0.11%.

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

Q3 Earnings Insight

Dollar General reported Q3 earnings per share at $2.31/share, which beat analyst predictions of $2.0/share.