Sonic Automotive's Return on Invested Capital Overview

According to Benzinga Pro data Sonic Automotive SAH posted a 2.57% decrease in earnings from Q1. Sales, however, increased by 1.84% over the previous quarter to $3.65 billion. Despite the increase in sales this quarter, the decrease in earnings may suggest Sonic Automotive is not utilizing their capital as effectively as possible. In Q1, Sonic Automotive earned $97.30 million and total sales reached $3.59 billion.

What Is Return On Invested Capital?

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 Q2, Sonic Automotive posted an ROIC of 3.93%.

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.

For Sonic Automotive, the positive return on invested capital ratio of 3.93% 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.