Benzinga | Mar 1, 2021 11:00AM EST

ROCE Insights For Applied Materials

Applied Materials (NASDAQ:AMAT) posted a 0% decrease in earnings from Q4. Sales, however, increased by 10.11% over the previous quarter to $5.16 billion. Despite the increase in sales this quarter, the decrease in earnings may suggest Applied Materials is not utilizing their capital as effectively as possible. Applied Materials earned $1.28 billion, and sales totaled $4.69 billion in Q4.

Why ROCE Is Significant

Changes in earnings and sales indicate shifts in Applied Materials'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 Q1, Applied Materials posted an ROCE of 0.11%.

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

Q1 Earnings Recap

Applied Materials reported Q1 earnings per share at $1.39/share, which beat analyst predictions of $1.28/share.