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Return On Capital Employed Overview: 3M

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3M (NYSE: MMM) saw a drop in both earnings and sales after Q2. Earnings dropped to $1.29 billion, a 81.7% decrease from the previous quarter. Sales fell to $7.18 billion, down 11.13% from the previous quarter. 3M reached earnings of $7.07 billion and sales of $8.07 billion in Q1.

Why ROCE Is Significant

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, 3M posted an ROCE of 1.52%.

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 3M, 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.

Q2 Earnings

3M reported Q2 earnings per share at $1.78/share against analyst predictions of $1.8/share.

 

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