ConocoPhillips Return on Invested Capital Overview

According to Benzinga Pro data ConocoPhillips COP posted a 10.66% decrease in earnings from Q1. Sales, however, increased by 13.99% over the previous quarter to $21.99 billion. Despite the increase in sales this quarter, the decrease in earnings may suggest ConocoPhillips is not utilizing their capital as effectively as possible. ConocoPhillips reached earnings of $5.76 billion and sales of $19.29 billion in Q1.

What Is ROIC?

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, ConocoPhillips posted an ROIC of 10.6%.

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.

ROIC is a powerful metric for comparing the effectiveness of capital allocation for similar companies. A relatively high ROIC shows ConocoPhillips 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 invested capital, some of that money can be reinvested in more capital which will generally lead to higher returns and, ultimately, earnings per share (EPS) growth.

For ConocoPhillips, the positive return on invested capital ratio of 10.6% 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.

Upcoming Earnings Estimate

ConocoPhillips reported Q2 earnings per share at $3.91/share, which beat analyst predictions of $3.9/share.

This article was generated by Benzinga's automated content engine and reviewed by an editor.