Market Overview

Looking Into Microsoft's Return On Capital Employed

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Looking at Q4, Microsoft (NASDAQ: MSFT) earned $13.41 billion, a 3.33% increase from the preceding quarter. Microsoft also posted a total of $38.03 billion in sales, a 8.6% increase since Q3. In Q3, Microsoft earned $12.97 billion, and total sales reached $35.02 billion.

What Is ROCE?

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 Q4, Microsoft posted an ROCE of 0.11%.

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.

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

Q4 Earnings Recap

Microsoft reported Q4 earnings per share at $1.46/share, which beat analyst predictions of $1.37/share.

 

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