Benzinga | Jul 22, 2021 10:57AM EDT

Looking into Levi Strauss's Return on Capital Employed

Pulled from Benzinga Pro data Levi Strauss (NYSE:LEVI) posted Q2 earnings of $106.45 million, an increase from Q1 of 39.9%. Sales dropped to $1.28 billion, a 2.3% decrease between quarters. Levi Strauss earned $177.12 million, and sales totaled $1.31 billion in Q1.

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 Q2, Levi Strauss posted an ROCE of 0.07%.

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 Levi Strauss, the return on capital employed ratio shows the number of assets can actually help the company achieve higher returns, an important note investors will take into account when gauging the payoff from long-term financing strategies.

Upcoming Earnings Estimate

Levi Strauss reported Q2 earnings per share at $0.23/share, which beat analyst predictions of $0.09/share.