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Looking Into Zynga's Return On Capital Employed

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Zynga (NASDAQ: ZNGA) reported Q1 sales of $403.77 million, but earnings were capped at $103.92 million, resulting in a 139.54% decrease from last quarter. In Q4, Zynga earned $262.83 million and total sales reached $404.46 million.

What Is Return On Capital Employed?

Return on Capital Employed is a measure of yearly pre-tax profit relative to capital employed in a business. Changes in earnings and sales indicate shifts in a company's ROCE. A higher ROCE is generally representative of successful growth in a company and is a sign of higher earnings per share for shareholders in the future. A low or negative ROCE suggests the opposite. In Q1, Zynga posted an ROCE of 0.06%.

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 Zynga 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.

For Zynga, the return on capital employed ratio shows the number of assets can actually help the company achieve higher returns, an important note investors will take into account when gauging the payoff from long-term financing strategies.

Q1 Earnings

Zynga reported Q1 earnings per share at -$0.11/share against analyst predictions of $0.05/share.

 

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