Benzinga | Jul 6, 2021 01:50PM EDT

Patterson Companies Insights: Return On Capital Employed

Patterson Companies (NASDAQ:PDCO) posted a 39.45% decrease in earnings from Q3. Sales, however, increased by 0.71% over the previous quarter to $1.56 billion. Despite the increase in sales this quarter, the decrease in earnings may suggest Patterson Companies is not utilizing their capital as effectively as possible. Patterson Companies reached earnings of $61.68 million and sales of $1.55 billion in Q3.

What Is ROCE?

Changes in earnings and sales indicate shifts in Patterson Companies's Return on Capital Employed, a measure of yearly pre-tax profit relative to capital employed by a business. Generally, a higher ROCE suggests successful growth of a company and is a sign of higher earnings per share in the future. In Q4, Patterson Companies posted an ROCE of 0.04%.

It is important to keep in mind ROCE evaluates past performance and is not used as a predictive tool. It is a good measure of a company's recent performance, but several factors could affect earnings and sales in the near future.

ROCE is an important metric for the comparison of similar companies. A relatively high ROCE shows Patterson Companies 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 Patterson Companies's case, the positive ROCE ratio will be something investors pay attention to before making long-term financial decisions.

Q4 Earnings Insight

Patterson Companies reported Q4 earnings per share at $0.38/share, which did not meet analyst predictions of $0.52/share.