Benzinga | Jun 10, 2021 09:55AM EDT

Looking Into Applied Materials's Return On Capital Employed

Looking at Q2, Applied Materials (NASDAQ:AMAT) earned $1.73 billion, a 35.07% increase from the preceding quarter. Applied Materials also posted a total of $5.58 billion in sales, a 8.14% increase since Q1. Applied Materials earned $1.28 billion, and sales totaled $5.16 billion in Q1.

What Is ROCE?

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 Q2, Applied Materials posted an ROCE of 0.14%.

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.

ROCE is an important metric for the comparison of similar companies. A relatively high ROCE shows Applied Materials 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 earnings per share growth.

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

Q2 Earnings Insight

Applied Materials reported Q2 earnings per share at $1.63/share, which beat analyst predictions of $1.51/share.