Market Overview

ROCE Insights For General Motors

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General Motors (NYSE: GM) posted a 464.42% decrease in earnings from Q2. Sales, however, increased by 111.47% over the previous quarter to $35.48 billion. Despite the increase in sales this quarter, the decrease in earnings may suggest General Motors is not utilizing their capital as effectively as possible. In Q2, General Motors brought in $16.78 billion in sales but lost $1.21 billion in earnings.

Why ROCE Is Significant

Changes in earnings and sales indicate shifts in General Motors’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 Q3, General Motors 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 General Motors 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 General Motors's case, the positive ROCE ratio will be something investors pay attention to before making long-term financial decisions.

Q3 Earnings Recap

General Motors reported Q3 earnings per share at $2.83/share, which beat analyst predictions of $1.38/share.

 

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Posted-In: Earnings News