Return On Capital Employed Overview: Merck & Co

Looking at Q2, Merck & Co MRK earned $3.13 billion, a 19.95% increase from the preceding quarter. Merck & Co's sales decreased to $10.87 billion, a 9.83% change since Q1. In Q1, Merck & Co earned $3.91 billion, and total sales reached $12.06 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 Q2, Merck & Co 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 Merck & Co 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.

In Merck & Co's case, the positive ROCE ratio will be something investors pay attention to before making long-term financial decisions.

Q2 Earnings Recap

Merck & Co reported Q2 earnings per share at $1.37/share, which beat analyst predictions of $1.04/share.