Benzinga | Jun 14, 2021 10:08AM EDT

Looking Into Nordstrom's Return On Capital Employed

Nordstrom (NYSE:JWN) reported Q1 sales of $2.92 billion. Earnings fell to a loss of $85.00 million, resulting in a 383.33% decrease from last quarter. In Q4, Nordstrom earned $30.00 million, and total sales reached $3.65 billion.

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 Q1, Nordstrom posted an ROCE of -0.51%.

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 Nordstrom, the return on capital employed ratio shows the current amount of assets may not actually be helping the company achieve higher returns, a note many investors will take into account when making long-term financial decisions.

Q1 Earnings Insight

Nordstrom reported Q1 earnings per share at $-0.64/share, which did not meet analyst predictions of $-0.57/share.