Return On Capital Employed Overview: Carvana

During Q2, Carvana CVNA brought in sales totaling $1.12 billion. However, earnings decreased 34.64%, resulting in a loss of $89.73 million. Carvana collected $1.10 billion in revenue during Q1, but reported earnings showed a $137.29 million loss.

Why ROCE Is Significant

Changes in earnings and sales indicate shifts in Carvana’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, Carvana posted an ROCE of -0.09%.

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 Carvana 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 Carvana, 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 Insight

Carvana reported Q2 earnings per share at $-0.62/share, which beat analyst predictions of $-0.83/share.