Benzinga | Jun 18, 2021 10:21AM EDT

Return On Capital Employed Overview: Abbott Laboratories

Abbott Laboratories (NYSE:ABT) posted Q1 earnings of $2.11 billion, an increase from Q4 of 13.28%. Sales dropped to $10.46 billion, a 2.29% decrease between quarters. Abbott Laboratories earned $2.43 billion, and sales totaled $10.70 billion in Q4.

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, Abbott Laboratories posted an ROCE of 0.06%.

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

Q1 Earnings Insight

Abbott Laboratories reported Q1 earnings per share at $1.32/share, which beat analyst predictions of $1.27/share.