Market Overview

Return On Capital Employed Overview: Microsoft


Microsoft (NASDAQ: MSFT) posted Q1 earnings of $15.88 billion, an increase from Q4 of 18.42%. Sales dropped to $37.15 billion, a 2.31% decrease between quarters. In Q4, Microsoft earned $13.41 billion, whereas sales reached $38.03 billion.

Why ROCE Is Significant

Changes in earnings and sales indicate shifts in Microsoft’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 Q1, Microsoft posted an ROCE of 0.13%.

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 Microsoft, 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.

Q1 Earnings Recap

Microsoft reported Q1 earnings per share at $1.82/share, which beat analyst predictions of $1.54/share.


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