Benzinga | Feb 19, 2021 10:58AM EST

ROCE Insights For Arista Networks

Looking at Q4, Arista Networks (NYSE:ANET) earned $194.64 million, a 3.31% increase from the preceding quarter. Arista Networks also posted a total of $648.48 million in sales, a 7.11% increase since Q3. Arista Networks earned $188.40 million, and sales totaled $605.43 million in Q3.

What Is Return On Capital Employed?

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 Q4, Arista Networks posted an ROCE of 0.06%.

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 Arista Networks 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.

For Arista Networks, 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.

Q4 Earnings Insight

Arista Networks reported Q4 earnings per share at $2.49/share, which beat analyst predictions of $2.39/share.