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Levi Strauss (NYSE:LEVI) posted a 120.6% decrease in earnings from Q2. Sales, however, increased by 113.65% over the previous quarter to $1.06 billion. Despite the increase in sales this quarter, the decrease in earnings may suggest Levi Strauss is not utilizing their capital as effectively as possible. Levi Strauss collected $497.54 million in revenue during Q2, but reported earnings showed a $448.24 million loss.
Why ROCE Is Significant
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Changes in earnings and sales indicate shifts in Levi Strauss’s Return on Capital Employed, a measure of 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, Levi Strauss posted an ROCE of 0.08%.
It is important to keep in mind ROCE evaluates past performance and is not used as a predictive tool. It is a good measure of a company's recent performance, but several factors could affect earnings and sales in the near future.
ROCE is an important metric for the comparison of similar companies. A relatively high ROCE shows Levi Strauss 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 Levi Strauss's case, the positive ROCE ratio will be something investors pay attention to before making long-term financial decisions.
Q3 Earnings Insight
Levi Strauss reported Q3 earnings per share at $0.08/share, which beat analyst predictions of $-0.22/share.
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