Paychex's Return on Invested Capital Insights

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According to Benzinga Pro data Paychex PAYX posted a 0.45% decrease in earnings from Q1. Sales, however, increased by 2.35% over the previous quarter to $1.11 billion. Despite the increase in sales this quarter, the decrease in earnings may suggest Paychex is not utilizing their capital as effectively as possible. In Q1, Paychex earned $333.60 million and total sales reached $1.08 billion.

What Is ROIC?

Return on Invested Capital is a measure of yearly pre-tax profit relative to capital invested by a business. Changes in earnings and sales indicate shifts in a company's ROIC. A higher ROIC 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 ROIC suggests the opposite. In Q2, Paychex posted an ROIC of 11.51%.

Keep in mind, while ROIC 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.

Earnings data without context is not clear and can difficult to base trading decisions on. Return on Invested Capital (ROIC) helps to filter signal from noise by measuring yearly pre-tax profit relative to invested capital by a business. Generally, a higher ROIC suggests successful growth of a company and is a sign of higher earnings per share in the future. In Q2, Paychex posted an ROIC of 11.51%.

It is important to keep in mind that ROIC evaluates past performance and is not used as a predictive tool. It is a good measure of a company's recent performance, but does not account for factors that could affect earnings and sales in the near future.

For Paychex, the positive return on invested capital ratio of 11.51% suggests that management is allocating their capital effectively. Effective capital allocation is a positive indicator that a company will achieve more durable success and favorable long-term returns.

Analyst Predictions

Paychex reported Q2 earnings per share at $0.91/share, which beat analyst predictions of $0.8/share.

This article was generated by Benzinga's automated content engine and reviewed by an editor.

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