The Estee Lauder Cos Earnings Perspective: Return On Invested Capital

According to Benzinga Pro data The Estee Lauder Cos EL posted a 18.98% decrease in earnings from Q1. Sales, however, increased by 17.58% over the previous quarter to $4.62 billion. Despite the increase in sales this quarter, the decrease in earnings may suggest The Estee Lauder Cos is not utilizing their capital as effectively as possible. In Q1, The Estee Lauder Cos earned $490.00 million and total sales reached $3.93 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, The Estee Lauder Cos posted an ROIC of 6.09%.

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.

ROIC is a powerful metric for comparing the effectiveness of capital allocation for similar companies. A relatively high ROIC shows The Estee Lauder Cos 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 invested 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 The Estee Lauder Cos, the positive return on invested capital ratio of 6.09% 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

The Estee Lauder Cos reported Q2 earnings per share at $1.54/share, which beat analyst predictions of $1.3/share.

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

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