First American Financial's Return On Capital Employed Overview

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Pulled from Benzinga Pro data, First American Financial FAF posted Q3 earnings of $3.00 million, an increase from Q2 of 97.27%. Sales dropped to $1.82 billion, a 11.54% decrease between quarters. In Q2, First American Financial earned $110.00 million, and total sales reached $2.06 billion.

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 Q3, First American Financial posted an ROCE of 0.0%.

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 First American Financial 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 First American Financial, the positive return on capital employed ratio of 0.0% 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

First American Financial reported Q3 earnings per share at $1.62/share, which beat analyst predictions of $1.54/share.

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

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