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Return On Capital Employed Overview: Advanced Micro Devices

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Advanced Micro Devices (NASDAQ: AMD) posted a 2.26% decrease in earnings from Q1. Sales, however, increased by 8.17% over the previous quarter to $1.93 billion. Despite the increase in sales this quarter, the decrease in earnings may suggest Advanced Micro Devices is not utilizing their capital as effectively as possible. Advanced Micro Devices reached earnings of $177.00 million and sales of $1.79 billion in Q1.

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, Advanced Micro Devices posted an ROCE of 0.05%.

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 Advanced Micro Devices, 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 Insight

Advanced Micro Devices reported Q2 earnings per share at $0.18/share, which beat analyst predictions of $0.16/share.

 

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