Benzinga | Jun 14, 2021 10:25AM EDT

Looking Into Dick's Sporting Goods's Return On Capital Employed

Dick's Sporting Goods (NYSE:DKS) posted Q1 earnings of $475.81 million, an increase from Q4 of 63.96%. Sales dropped to $2.92 billion, a 6.59% decrease between quarters. In Q4, Dick's Sporting Goods earned $290.20 million, whereas sales reached $3.12 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 Q1, Dick's Sporting Goods posted an ROCE of 0.18%.

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 Dick's Sporting Goods 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 Dick's Sporting Goods's case, the positive ROCE ratio will be something investors pay attention to before making long-term financial decisions.

Q1 Earnings Recap

Dick's Sporting Goods reported Q1 earnings per share at $3.79/share, which beat analyst predictions of $1.12/share.