Benzinga | Aug 20, 2021 01:37PM EDT

Return on Capital Employed Insights for Plains All American

Pulled from Benzinga Pro data Plains All American (NYSE:PAA) posted a 74.81% decrease in earnings from Q1. Sales, however, increased by 18.45% over the previous quarter to $9.93 billion. Despite the increase in sales this quarter, the decrease in earnings may suggest Plains All American is not utilizing their capital as effectively as possible. In Q1, Plains All American earned $528.00 million and total sales reached $8.38 billion.

What Is Return On Capital Employed?

Changes in earnings and sales indicate shifts in Plains All American'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, Plains All American posted an ROCE of 0.01%.

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

Analyst Predictions

Plains All American reported Q2 earnings per share at $0.23/share, which did not meet analyst predictions of $0.24/share.