Benzinga | Jun 10, 2021 09:52AM EDT

Analog Devices Insights: Return On Capital Employed

Looking at Q2, Analog Devices (NASDAQ:ADI) earned $519.69 million, a 12.04% increase from the preceding quarter. Analog Devices also posted a total of $1.66 billion in sales, a 6.61% increase since Q1. In Q1, Analog Devices earned $463.86 million, and total sales reached $1.56 billion.

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 Q2, Analog Devices posted an ROCE of 0.04%.

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.

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.

Q2 Earnings Recap

Analog Devices reported Q2 earnings per share at $1.54/share, which beat analyst predictions of $1.45/share.