Walt Disney (NYSE: DIS) recorded a 117.26% reduction in earnings in the fourth quarter. Sales, however, increased 10.48% over the previous quarter, to $ 16.25 billion. Despite the increase in sales this quarter, the decrease in earnings may suggest that Walt Disney is not using its capital as effectively as possible. In the fourth quarter, Walt Disney achieved $ 14.71 billion in sales, but lost $ 846.00 million in earnings.
What is the return on capital employed?
Return on capital employed is a measure of annual profit before tax in relation to capital employed by a company. Changes in earnings and sales indicate changes in a company’s ROCE. A higher ROCE is generally representative of a company’s successful growth and is a sign of greater earnings per share in the future. A low or negative ROCE suggests the opposite. In the first quarter, Walt Disney posted a 0.0% ROCE.
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Remember that while the ROCE is a good measure of a company’s recent performance, it is not a highly reliable indicator of the company’s earnings or sales in the near future.
ROCE is an important metric for comparing similar companies. A relatively high ROCE shows that Walt Disney is potentially operating at a higher level of efficiency than other companies in its industry. If the company is generating high profits at its current level of capital, some of that money can be reinvested in more capital, which generally leads to higher returns and increased earnings per share.
For Walt Disney, the return on capital employed index shows that the number of assets can really help the company achieve higher returns, an important observation that investors will take into account when evaluating the return on long-term financing strategies.
First quarter earnings review
Walt Disney reported first quarter earnings per share of $ 0.32 / share, which exceeded analysts’ forecasts of $ -0.41 / share.