Return on Capital Employed Overview: Equifax

Pulled from Benzinga Pro data Equifax EFX posted a 0.2% decrease in earnings from Q1. Sales, however, increased by 1.8% over the previous quarter to $1.23 billion. Despite the increase in sales this quarter, the decrease in earnings may suggest Equifax is not utilizing their capital as effectively as possible. In Q1, Equifax earned $306.60 million and total sales reached $1.21 billion.

What Is Return On Capital Employed?

Changes in earnings and sales indicate shifts in Equifax'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, Equifax posted an ROCE of 0.09%.

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 Equifax 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.

In Equifax's case, the positive ROCE ratio will be something investors pay attention to before making long-term financial decisions.