Premier Earnings Perspective: Return On Invested Capital

According to Benzinga Pro, during Q1, Premier PINC earned $42.96 million, a 39.88% increase from the preceding quarter. Premier's sales decreased to $313.87 million, a 7.88% change since Q4. In Q4, Premier brought in $340.71 million in sales but only earned $30.71 million.

What Is Return On Invested Capital?

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 Q1, Premier posted an ROIC of 2.1%.

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.

ROIC is a powerful metric for comparing the effectiveness of capital allocation for similar companies. A relatively high ROIC shows Premier 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 Premier, the positive return on invested capital ratio of 2.1% 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.