Looking Into American Airlines Group's Return On Capital Employed

During Q2, American Airlines Group AAL brought in sales totaling $1.62 billion. However, earnings decreased 2.47%, resulting in a loss of $2.49 billion. American Airlines Group collected $8.52 billion in revenue during Q1, but reported earnings showed a $2.55 billion loss.

What Is Return On Capital Employed?

Return on Capital Employed is a measure of yearly pre-tax profit relative to capital employed by a business. Changes in earnings and sales indicate shifts in a company's ROCE. A higher ROCE is generally representative of successful growth of a company and is a sign of higher earnings per share in the future. A low or negative ROCE suggests the opposite. In Q2, American Airlines Group posted an ROCE of 0.78%.

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 American Airlines Group 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 generally lead to higher returns and earnings per share growth.

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

Q2 Earnings Recap

American Airlines Group reported Q2 earnings per share at $-7.82/share, which did not meet analyst predictions of $-7.7/share.