Return On Capital Employed Overview: Gap

During Q1, Gap GPS brought in sales totaling $2.11 billion. However, earnings decreased 166.05%, resulting in a loss of $932.00 million. In Q4, Gap earned $1.41 billion and total sales reached $4.67 billion.

What Is Return On Capital Employed?

Changes in earnings and sales indicate shifts in Gap’s Return on Capital Employed, a measure of yearly pre-tax profit relative to capital employed in a business. Generally, a higher ROCE suggests successful growth in a company and is a sign of higher earnings per share for shareholders in the future. In Q1, Gap posted an ROCE of 0.4%.

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 Gap 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 lead to higher returns and earnings per share growth.

In Gap's case, the positive ROCE ratio will be something investors pay attention to before making long-term financial decisions.

Q1 Earnings

Gap reported Q1 earnings per share at $-2.51/share against analyst predictions of $-0.41/share.