Benzinga | Aug 27, 2020 09:57AM EDT

Looking Into Dollar Tree's Return On Capital Employed

Looking at Q2, Dollar Tree (NASDAQ:DLTR) earned $374.90 million, a 2.46% increase from the preceding quarter. Dollar Tree's sales decreased to $6.28 billion, a 0.14% change since Q1. In Q1, Dollar Tree brought in $6.29 billion in sales but only earned $365.90 million.

What Is Return On Capital Employed?

Changes in earnings and sales indicate shifts in Dollar Tree's Return on Capital Employed, a measure of yearly pre-tax profit relative to capital employed in a business. Generally, a higher ROCE suggests successful growth in a company and is a sign of higher earnings per share for shareholders in the future. In Q2, Dollar Tree posted an ROCE of 0.06%.

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 Dollar Tree 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 lead to higher returns and earnings per share growth.

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

Q2 Earnings Insight

Dollar Tree reported Q2 earnings per share at $1.1/share, which beat analyst predictions of $0.92/share.