ROCE Insights For Goldman Sachs

Benzinga Insights
July 16, 2020

Goldman Sachs Group (NYSE:GS) posted a 94.92% decrease in earnings from Q1. Sales, however, increased by 52.06% over the previous quarter to $13.29 billion. Despite the increase in sales this quarter, the decrease in earnings may suggest Goldman Sachs is not utilizing its capital as effectively as possible. Goldman Sachs reached earnings of $23.87 billion and sales of $8.74 billion in Q1.

What Is ROCE?

Return on Capital Employed is a measure of yearly pre-tax profit relative to capital employed in a business. Changes in earnings and sales indicate shifts in a company's ROCE. A higher ROCE is generally representative of successful growth in a company and is a sign of higher earnings per share for shareholders in the future. A low or negative ROCE suggests the opposite.

In Q2, Goldman Sachs Group posted a ROCE of -0.19%.

Keep in mind, while ROCE 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.

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 Goldman Sachs Group's case, the ROCE ratio shows the amount of assets may not be helping the company achieve higher returns. Investors may take this into account before making any long-term financial decisions.

Q2 Earnings

Goldman Sachs reported Q2 earnings per share at $6.26/share against analyst predictions of $3.78/share.