During Q1, GameStop (((NYSE:GM)E)) brought in sales totaling $1.28 billion. However, earnings decreased 317.02%, resulting in a loss of $40.80 million. In Q4, GameStop earned $18.80 million, and total sales reached $2.12 billion.
What Is Return On Capital Employed?
Changes in earnings and sales indicate shifts in GameStop‘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 Q1, GameStop posted an ROCE of -0.05%.
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.
For GameStop, the return on capital employed ratio shows the current amount of assets may not actually be helping the company achieve higher returns, a note many investors will take into account when making long-term financial decisions.
Q1 Earnings Recap
GameStop reported Q1 earnings per share at $-0.45/share, which beat analyst predictions of $-0.83/share.