International Paper (NYSE:IP) posted a 12.14% decrease in earnings from Q3. Sales, however, increased by 2.26% over the previous quarter to $5.24 billion. Despite the increase in sales this quarter, the decrease in earnings may suggest International Paper is not utilizing their capital as effectively as possible. International Paper reached earnings of $387.00 million and sales of $5.12 billion in Q3.
What Is ROCE?
Changes in earnings and sales indicate shifts in International Paper’s Return on Capital Employed, a measure of yearly pre-tax profit relative to capital employed by a business. Generally, a higher ROCE suggests successful growth of a company and is a sign of higher earnings per share in the future. In Q4, International Paper posted an ROCE of 0.04%.
It is important to keep in mind ROCE evaluates past performance and is not used as a predictive tool. It is a good measure of a company’s recent performance, but several factors could affect earnings and sales in the near future.
Return on Capital Employed is an important measurement of efficiency and a useful tool when comparing companies that operate in the same industry. A relatively high ROCE indicates a company may be generating profits that can be reinvested into more capital, leading to higher returns and growing EPS for shareholders.
In International Paper’s case, the positive ROCE ratio will be something investors pay attention to before making long-term financial decisions.
Q4 Earnings Insight
International Paper reported Q4 earnings per share at $0.75/share, which did not meet analyst predictions of $0.8/share.
