Benzinga | Nov 8, 2021 10:12AM EST

Revlon's Return On Capital Employed Insights

According to Benzinga Pro, during Q3, Revlon (NYSE:REV) earned $34.20 million, a 169.29% increase from the preceding quarter. Revlon also posted a total of $521.10 million in sales, a 4.76% increase since Q2. Revlon earned $12.70 million, and sales totaled $497.40 million in Q2.

Why Is ROCE Significant?

Earnings data without context is not clear and can be difficult to base trading decisions on. Return on Capital Employed (ROCE) helps to filter signal from noise by measuring yearly pre-tax profit relative to capital employed by a business. Generally, a higher ROCE suggests successful growth of a company and is a sign of higher earnings per share in the future. In Q3, Revlon posted an ROCE of -0.02%.

It is important to keep in mind that ROCE evaluates past performance and is not used as a predictive tool. It is a good measure of a company's recent performance, but does not account for factors that could affect earnings and 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 Revlon 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 Revlon, a negative ROCE ratio of -0.02% suggests that management may not be effectively allocating their capital.Effective capital allocation is a positive indicator that a company will achieve more durable success and favorable long-term returns; poor capital allocation can be a leech on the performance of a company over time.

Analyst Predictions

Revlon reported Q3 earnings per share at $-0.74/share, which beat analyst predictions of $-1.23/share.