Benzinga | Apr 20, 2021 11:08AM EDT

Return On Capital Employed Overview: Carvana

In Q4, Carvana (NYSE:CVNA) posted sales of $1.83 billion. Earnings were up 1404.19%, but Carvana still reported an overall loss of $98.81 million. Carvana collected $1.54 billion in revenue during Q3, but reported earnings showed a $6.57 million loss.

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 Q4, Carvana posted an ROCE of -0.12%.

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 Carvana 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 Carvana's case, the ROCE ratio shows the amount of assets may not be helping the company achieve higher returns. Investors may take this into account before making any long-term financial decisions.

Q4 Earnings Insight

Carvana reported Q4 earnings per share at $-0.4/share, which beat analyst predictions of $-0.47/share.