Benzinga | Mar 10, 2021 09:40AM EST

Return On Capital Employed Overview: Bausch Health Companies

Bausch Health Companies (NYSE:BHC) posted a 96.32% decrease in earnings from Q3. Sales, however, increased by 3.51% over the previous quarter to $2.21 billion. Despite the increase in sales this quarter, the decrease in earnings may suggest Bausch Health Companies is not utilizing their capital as effectively as possible. In Q3, Bausch Health Companies earned $462.00 million and total sales reached $2.14 billion.

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 Q4, Bausch Health Companies posted an ROCE of 0.03%.

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

Q4 Earnings Insight

Bausch Health Companies reported Q4 earnings per share at $1.33/share, which beat analyst predictions of $1.12/share.