Benzinga | Jul 8, 2021 10:44AM EDT

L Brands Insights: Return On Capital Employed

L Brands (NYSE:LB) posted Q1 earnings of $572.00 million, an increase from Q4 of 55.07%. Sales dropped to $3.02 billion, a 37.24% decrease between quarters. In Q4, L Brands earned $1.27 billion, and total sales reached $4.82 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, L Brands posted an ROCE of -1.07%.

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 L Brands, 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

L Brands reported Q1 earnings per share at $1.25/share, which beat analyst predictions of $0.98/share.