Market Overview

Looking Into Splunk's Return On Capital Employed

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During Q1, Splunk's (NASDAQ: SPLK) reported sales totaled $434.08 million. Despite a 3614.92% in earnings, the company posted a loss of $288.61 million. In Q4, Splunk brought in $791.18 million in sales but lost $7.77 million in earnings.

What Is ROCE?

Changes in earnings and sales indicate shifts in Splunk’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, Splunk posted an ROCE of -0.16%.

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.

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 Splunk, 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.

Q1 Earnings Recap

Splunk reported Q1 earnings per share at $-0.56/share, which beat analyst predictions of $-0.57/share.

 

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