Benzinga | Aug 20, 2021 01:50PM EDT

Return on Capital Employed Overview: Plains GP Holdings

Pulled from Benzinga Pro data Plains GP Holdings (NYSE:PAGP) showed a loss in earnings since Q1, totaling $130.00 million. Sales, on the other hand, increased by 18.45% to $9.93 billion during Q2. Plains GP Holdings reached earnings of $526.00 million and sales of $8.38 billion in Q1.

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 Q2, Plains GP Holdings posted an ROCE of 0.01%.

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 Plains GP Holdings, 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.

Analyst Predictions

Plains GP Holdings reported Q2 earnings per share at $0.23/share, which beat analyst predictions of $0.22/share.