Navistar International Insights: Return On Capital Employed

Navistar International NAV posted a 191.67% decrease in earnings from Q1. Sales, however, increased by 19.32% over the previous quarter to $2.16 billion. Despite the increase in sales this quarter, the decrease in earnings may suggest Navistar International is not utilizing their capital as effectively as possible. In Q1, Navistar International brought in $1.81 billion in sales but lost $36.00 million in earnings.

What Is ROCE?

Changes in earnings and sales indicate shifts in Navistar International'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 Q2, Navistar International posted an ROCE of -0.01%.

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.

ROCE is an important metric for the comparison of similar companies. A relatively high ROCE shows Navistar International 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 earnings per share growth.

For Navistar International, 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.

Q2 Earnings Recap

Navistar International reported Q2 earnings per share at $0.72/share, which did not meet analyst predictions of $0.72/share.