Looking Into American Express's Return On Capital Employed

American Express AXP saw a drop in both earnings and sales after Q2. Earnings dropped to $367.00 million, a 97.31% decrease from the previous quarter. Sales fell to $7.67 billion, down 25.56% from the previous quarter. In Q1, American Express hit $13.63 billion in earnings, whereas sales totaled $10.31 billion.

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 Q2, American Express posted an ROCE of -0.12%.

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.

Return on Capital Employed is an important measurement of efficiency and a useful tool when comparing companies that operate in the same industry. A relatively high ROCE indicates a company may be generating profits that can be reinvested into more capital, leading to higher returns and growing EPS for shareholders. For American Express, the return on capital employed ratio shows the current amount of assets may not actually be helping the company achieve higher returns, a note many investors will take into account when making long-term financial decisions.

Q2 Earnings

American Express reported Q2 earnings per share at $0.29/share against analyst predictions of $-0.11/share.