Broadcom AVGO posted Q2 earnings of $1.98 billion, an increase from Q1 of 7.51%. Sales dropped to $6.61 billion, a 0.68% decrease between quarters. In Q1, Broadcom brought in $6.66 billion in sales but only earned $1.84 billion.
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, Broadcom posted an ROCE of 0.08%.
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 Broadcom 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 Broadcom's case, the positive ROCE ratio will be something investors pay attention to before making long-term financial decisions.
Q2 Earnings Recap
Broadcom reported Q2 earnings per share at $6.62/share, which beat analyst predictions of $6.42/share.
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