Benzinga | Feb 19, 2021 10:56AM EST

Return On Capital Employed Overview: Allison Transmission

Looking at Q4, Allison Transmission (NYSE:ALSN) earned $133.00 million, a 3.91% increase from the preceding quarter. Allison Transmission also posted a total of $535.00 million in sales, a 0.56% increase since Q3. In Q3, Allison Transmission earned $128.00 million, and total sales reached $532.00 million.

What Is Return On Capital Employed?

Changes in earnings and sales indicate shifts in Allison Transmission's Return on Capital Employed, a measure of 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 Q4, Allison Transmission posted an ROCE of 0.18%.

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

Return on Capital Employed is an important measurement of efficiency and a useful tool when comparing companies that operate in the same industry. A relatively high ROCE indicates a company may be generating profits that can be reinvested into more capital, leading to higher returns and growing EPS for shareholders.

In Allison Transmission's case, the positive ROCE ratio will be something investors pay attention to before making long-term financial decisions.

Q4 Earnings Insight

Allison Transmission reported Q4 earnings per share at $0.53/share, which did not meet analyst predictions of $0.71/share.