Wells Fargo's Return On Capital Employed Insights

Pulled from Benzinga Pro data, Wells Fargo WFC posted Q2 earnings of $2.95 billion, an increase from Q1 of 22.36%. Sales dropped to $17.03 billion, a 3.21% decrease between quarters. Wells Fargo earned $3.80 billion, and sales totaled $17.59 billion in Q1.

What Is Return On Capital Employed?

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 Q2, Wells Fargo posted an ROCE of 0.02%.

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.

ROCE is a powerful metric for comparing the effectiveness of capital allocation for similar companies. A relatively high ROCE shows Wells Fargo 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 Wells Fargo, the positive return on capital employed ratio of 0.02% 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.

Upcoming Earnings Estimate

Wells Fargo reported Q2 earnings per share at $0.74/share, which did not meet analyst predictions of $0.86/share.

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