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Return On Capital Employed Overview: Northrop Grumman

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Looking at Q2, Northrop Grumman (NYSE: NOC) earned $994.00 million, a 6.42% increase from the preceding quarter. Northrop Grumman also posted a total of $8.88 billion in sales, a 3.06% increase since Q1. Northrop Grumman earned $934.00 million, and sales totaled $8.62 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, Northrop Grumman posted an ROCE of 0.1%.

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 Northrop Grumman 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 Northrop Grumman's case, the positive ROCE ratio will be something investors pay attention to before making long-term financial decisions.

Q2 Earnings Insight

Northrop Grumman reported Q2 earnings per share at $6.01/share, which beat analyst predictions of $5.32/share.

 

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