Benzinga | Feb 18, 2021 10:20AM EST

Return On Capital Employed Overview: Analog Devices

Looking at Q1, Analog Devices (NASDAQ:ADI) earned $463.86 million, a 0.47% increase from the preceding quarter. Analog Devices also posted a total of $1.56 billion in sales, a 2.1% increase since Q4. Analog Devices earned $461.67 million, and sales totaled $1.53 billion in Q4.

What Is Return On Capital Employed?

Changes in earnings and sales indicate shifts in Analog Devices'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 Q1, Analog Devices posted an ROCE of 0.04%.

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.

For Analog Devices, the return on capital employed ratio shows the number of assets can actually help the company achieve higher returns, an important note investors will take into account when gauging the payoff from long-term financing strategies.

Q1 Earnings Recap

Analog Devices reported Q1 earnings per share at $1.44/share, which beat analyst predictions of $1.32/share.