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Looking Into Coca-Cola's Return On Capital Employed

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Coca-Cola (NYSE: KO) posted Q2 earnings of $2.19 billion, an increase from Q1 of 24.93%. Sales dropped to $7.15 billion, a 16.87% decrease between quarters. In Q1, Coca-Cola earned $2.92 billion, and total sales reached $8.60 billion.

Why ROCE Is Significant

Changes in earnings and sales indicate shifts in Coca-Cola’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 Q2, Coca-Cola posted an ROCE of 0.11%.

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.

ROCE is an important metric for the comparison of similar companies. A relatively high ROCE shows Coca-Cola 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 Coca-Cola, 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

Coca-Cola reported Q2 earnings per share at $0.42/share, which beat analyst predictions of $0.4/share.

 

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Posted-In: Earnings News