Looking Into Bank Of America's Return On Capital Employed

In Q2, Bank of America BAC saw a decline in both earnings and sales. Earnings decreased by 93.51% to $4.01 billion, and sales dropped by 1.99% to $22.45 billion. Bank of America reached earnings of $61.78 billion and sales of $22.91 billion in Q1.

What Is ROCE?

Changes in earnings and sales indicate shifts in Bank of America’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, Bank of America 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 Bank of America 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.

In Bank of America'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.