Benzinga | Jun 30, 2021 10:48AM EDT

Return On Capital Employed Overview: Wells Fargo

Looking at Q1, Wells Fargo (NYSE:WFC) earned $5.12 billion, a 55.12% increase from the preceding quarter. Wells Fargo also posted a total of $18.06 billion in sales, a 0.77% increase since Q4. Wells Fargo earned $3.30 billion, and sales totaled $17.93 billion in Q4.

What Is ROCE?

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, Wells Fargo posted an ROCE of 0.03%.

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

Q1 Earnings Insight

Wells Fargo reported Q1 earnings per share at $1.05/share, which beat analyst predictions of $0.7/share.