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Looking Into Costco Wholesale's Return On Capital Employed

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Looking at Q1, Costco Wholesale (NASDAQ:COST) earned $1.43 billion, a 25.87% increase from the preceding quarter. Costco Wholesale's sales decreased to $43.21 billion, a 19.06% change since Q4. Costco Wholesale earned $1.93 billion, and sales totaled $53.38 billion in Q4.

Why ROCE Is Significant

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 Q1, Costco Wholesale posted an ROCE of 0.09%.

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.

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.

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

Q1 Earnings Insight

Costco Wholesale reported Q1 earnings per share at $2.29/share, which beat analyst predictions of $2.05/share.

 

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Posted-In: BZI-ROCEEarnings News

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