Looking Into Signet Jewelers's Return On Capital Employed - Signet Jewelers (NYSE:SIG)
Pulled from Benzinga Pro data, Signet Jewelers SIG posted Q1 earnings of $97.40 million, an increase from Q4 of 64.88%. Sales dropped to $1.67 billion, a 37.43% decrease between quarters. Signet Jewelers earned $277.30 million, and sales totaled $2.67 billion in Q4.
Why Is ROCE Significant?
Earnings data without context is not clear and can be difficult to base trading decisions on. Return on Capital Employed (ROCE) helps to filter signal from noise by measuring 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, Signet Jewelers posted an ROCE of 0.04%.
It is important to keep in mind that ROCE evaluates past performance and is not used as a predictive tool. It is a good measure of a company's recent performance, but does not account for factors that could affect earnings and sales in the near future.
ROCE is a powerful metric for comparing the effectiveness of capital allocation for similar companies. A relatively high ROCE shows Signet Jewelers 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, ultimately, earnings per share (EPS) growth.