American Airlines Group's Return On Capital Employed Insights

American Airlines Group's Return On Capital Employed Insights

According to Benzinga Pro, during Q2, American Airlines Group AAL earned $476.00 million, a 129.11% increase from the preceding quarter. American Airlines Group also posted a total of $13.42 billion in sales, a 50.83% increase since Q1. American Airlines Group collected $8.90 billion in revenue during Q1, but reported earnings showed a $1.64 billion loss.

Why Is ROCE Significant?

Earnings data without context is not clear and can be difficult to base trading decisions on. Return on Capital Employed (ROCE) helps to filter signal from noise by measuring 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 Q2, American Airlines Group posted an ROCE of -0.06%.

It is important to keep in mind that ROCE 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.

ROCE is a powerful metric for comparing the effectiveness of capital allocation for similar companies. A relatively high ROCE shows American Airlines Group 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, ultimately, earnings per share (EPS) growth.

For American Airlines Group, a negative ROCE ratio of -0.06% suggests that management may not be effectively allocating their capital. Effective capital allocation is a positive indicator that a company will achieve more durable success and favorable long-term returns; poor capital allocation can be a leech on the performance of a company over time.

Upcoming Earnings Estimate

American Airlines Group reported Q2 earnings per share at $0.76/share, which did not meet analyst predictions of $0.77/share.

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

Posted In: BZI-ROCEEarnings