Return On Capital Employed Overview: Splunk

In Q1, Splunk SPLK posted sales of $502.05 million. Earnings were up 402.72%, but Splunk still reported an overall loss of $435.35 million. Splunk collected $745.08 million in revenue during Q4, but reported earnings showed a $86.60 million loss.

Why ROCE Is Significant

Changes in earnings and sales indicate shifts in Splunk'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, Splunk posted an ROCE of -0.35%.

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.

In Splunk's case, the ROCE ratio shows the amount of assets may not be helping the company achieve higher returns. Investors may take this into account before making any long-term financial decisions.

Q1 Earnings Insight

Splunk reported Q1 earnings per share at $-0.91/share, which did not meet analyst predictions of $-0.7/share.