Looking Into GameStop's Return On Capital Employed

During Q2, GameStop GME brought in sales totaling $942.00 million. However, earnings decreased 10.28%, resulting in a loss of $96.90 million. GameStop collected $1.02 billion in revenue during Q1, but reported earnings showed a $108.00 million loss.

What Is Return On Capital Employed?

Changes in earnings and sales indicate shifts in GameStop’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, GameStop posted an ROCE of -0.28%.

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 GameStop 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 GameStop, 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.

Q2 Earnings Recap

GameStop reported Q2 earnings per share at $-1.4/share, which did not meet analyst predictions of $-1.13/share.