Walt Disney (NYSE: DIS) posted a 117.26% profit decline from the fourth quarter. However, sales were up 10.48% from the previous quarter to $ 16.25 billion. Despite the increase in sales this quarter, the decline in revenues may indicate that Walt Disney is not using their capital as effectively as possible. In the fourth quarter, Walt Disney brought in $ 14.71 billion in revenue, but lost $ 846.00 million in profit.
What is Return on Capital Employed?
Return on capital employed is a measure of annual pre-tax profit relative to capital employed by a company. Changes in earnings and sales indicate shifts in a company’s ROCE. A higher ROCE is typically representative of a company’s successful growth and is a sign of higher earnings per share in the future. A low or negative ROCE suggests the opposite. In Q1, Walt Disney posted a ROCE of 0.0%.
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Keep in mind that while ROCE is a good measure of a company’s recent performance, it is not a very reliable predictor of a company’s earnings or sales in the near future.
ROCE is an important benchmark for the comparison of comparable companies. A relatively high ROCE shows that Walt Disney may be operating at a higher level of efficiency than other companies in its industry. If the company is generating high profits at the current level of capital, some of that money can be reinvested in more capital, which will typically lead to higher returns and earnings per share growth.
For Walt Disney, the return on capital employed shows that the number of assets can actually help the company achieve higher returns, an important note investors will consider when assessing the payout of long-term financing strategies.
Q1 earnings statement
Walt Disney reported first quarter earnings per share of $ 0.32 / share, ahead of analysts’ forecasts of $ -0.41 / share.