Best Buy Co BBY posted a 1.23% decrease in earnings from Q2. Sales, however, increased by 19.61% over the previous quarter to $11.85 billion. Despite the increase in sales this quarter, the decrease in earnings may suggest Best Buy Co is not utilizing their capital as effectively as possible. Best Buy Co earned $568.00 million, and sales totaled $9.91 billion in Q2.
Why ROCE Is Significant
Changes in earnings and sales indicate shifts in Best Buy Co'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, Best Buy Co posted an ROCE of 0.14%.
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 Best Buy Co, 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.
Q3 Earnings Recap
Best Buy Co reported Q3 earnings per share at $2.06/share, which beat analyst predictions of $1.7/share.
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