Benzinga | Oct 12, 2021 10:50AM EDT

Pinnacle Financial's Return On Capital Employed Overview

According to Benzinga Pro, during Q2, Pinnacle Financial (NASDAQ:PNFP) earned $162.46 million, a 5.73% increase from the preceding quarter. Pinnacle Financial also posted a total of $331.07 million in sales, a 4.91% increase since Q1. Pinnacle Financial earned $153.65 million, and sales totaled $315.58 million 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, Pinnacle Financial posted an ROCE of 0.03%.

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 a powerful metric for comparing the effectiveness of capital allocation for similar companies. A relatively high ROCE shows Pinnacle Financial 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, ultimately, earnings per share (EPS) growth.

For Pinnacle Financial, the positive return on capital employed ratio of 0.03% suggests that management is allocating their capital effectively. Effective capital allocation is a positive indicator that a company will achieve more durable success and favorable long-term returns.

Upcoming Earnings Estimate

Pinnacle Financial reported Q2 earnings per share at $1.68/share, which beat analyst predictions of $1.44/share.