Benzinga | Aug 27, 2021 10:49AM EDT

Return on Capital Employed Overview: Papa John's International

Pulled from Benzinga Pro data Papa John's International (NASDAQ:PZZA) posted a 4.75% decrease in earnings from Q1. Sales, however, increased by 0.64% over the previous quarter to $515.01 million. Despite the increase in sales this quarter, the decrease in earnings may suggest Papa John's International is not utilizing their capital as effectively as possible. Papa John's International reached earnings of $46.86 million and sales of $511.75 million in Q1.

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 Q2, Papa John's International posted an ROCE of -0.32%.

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 Papa John's International 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 Papa John's International's case, the ROCE ratio shows the amount of assets may not be helping the company achieve higher returns. Investors may take this into account before making any long-term financial decisions.

Upcoming Earnings Estimate

Papa John's International reported Q2 earnings per share at $0.93/share, which beat analyst predictions of $0.7/share.