Market Overview

Looking Into Netflix's Return On Capital Employed

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Looking at Q2, Netflix (NASDAQ: NFLX) earned $1.36 billion, a 41.71% increase from the preceding quarter. Netflix also posted a total of $6.15 billion in sales, a 6.59% increase since Q1. In Q1, Netflix earned $958.26 million, and total sales reached $5.77 billion.

Why ROCE Is Significant

Changes in earnings and sales indicate shifts in Netflix’s Return on Capital Employed, a measure of yearly pre-tax profit relative to capital employed by a business. Generally, a higher ROCE suggests successful growth of a company and is a sign of higher earnings per share in the future. In Q2, Netflix posted an ROCE of 0.15%.

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.

Return on Capital Employed is an important measurement of efficiency and a useful tool when comparing companies that operate in the same industry. A relatively high ROCE indicates a company may be generating profits that can be reinvested into more capital, leading to higher returns and growing EPS for shareholders.

For Netflix, 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.

Q2 Earnings Insight

Netflix reported Q2 earnings per share at $1.59/share, which did not meet analyst predictions of $1.81/share.

 

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