Fabrinet's Return on Invested Capital Overview

According to Benzinga Pro data Fabrinet FN posted a 2.26% decrease in earnings from Q1. Sales, however, increased by 2.02% over the previous quarter to $668.66 million. Despite the increase in sales this quarter, the decrease in earnings may suggest Fabrinet is not utilizing their capital as effectively as possible. Fabrinet reached earnings of $64.61 million and sales of $655.43 million in Q1.

Why Is ROIC Significant?

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 Q2, Fabrinet posted an ROIC of 4.7%.

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 Fabrinet 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 Fabrinet, the positive return on invested capital ratio of 4.7% 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

Fabrinet reported Q2 earnings per share at $1.9/share, which beat analyst predictions of $1.87/share.

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