Northrop Grumman's Return on Invested Capital Insights

Pulled from Benzinga Pro data, Northrop Grumman NOC posted Q4 earnings of $2.71 billion, an increase from Q3 of 154.94%. Sales dropped to $8.64 billion, a 0.93% decrease between quarters. In Q3, Northrop Grumman brought in $8.72 billion in sales but only earned $1.06 billion.

Why Is ROIC Significant?

Earnings data without context is not clear and can difficult to base trading decisions on. Return on Invested Capital (ROIC) helps to filter signal from noise by measuring yearly pre-tax profit relative to invested capital by a business. Generally, a higher ROIC suggests successful growth of a company and is a sign of higher earnings per share in the future. In Q4, Northrop Grumman posted an ROIC of 4.31%.

It is important to keep in mind that ROIC evaluates past performance and is not used as a predictive tool. It is a good measure of a company's recent performance, but does not account for factors that could affect earnings and sales in the near future.

Return on Invested Capital is a measure of yearly pre-tax profit relative to capital invested by a business. Changes in earnings and sales indicate shifts in a company's ROIC. A higher ROIC is generally representative of successful growth of a company and is a sign of higher earnings per share in the future. A low or negative ROIC suggests the opposite. In Q4, Northrop Grumman posted an ROIC of 4.31%.

Keep in mind, while ROIC is a good measure of a company's recent performance, it is not a highly reliable predictor of a company's earnings or sales in the near future.

For Northrop Grumman, the positive return on invested capital ratio of 4.31% suggests that management is allocating their capital effectively. Effective capital allocation is a positive indicator that a company will achieve more durable success and favorable long-term returns.