Return On Capital Employed Overview: Wells Fargo

Wells Fargo WFC showed a loss in earnings in Q2, totaling $505 million. Sales, on the other hand, increased by 0.67% to $17.84 billion during Q2. In Q1, Wells Fargo hit $6.73 billion in earnings, but sales only totaled $17.72 billion.

What Is ROCE?

Changes in earnings and sales indicate shifts in Wells Fargo’s Return on Capital Employed, a measure of yearly pre-tax profit relative to capital employed in a business. Generally, a higher ROCE suggests successful growth in a company and is a sign of higher earnings per share for shareholders in the future.

In Q2, Wells Fargo posted a ROCE of -0.02%.

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 Wells Fargo 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 lead to higher returns and earnings per share growth.

For Wells Fargo, 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 Report

Wells Fargo reported Q2 earnings per share at -$0.66/share against analyst predictions of -$0.20/share.