According to Benzinga Pro data Texas Capital Bancshares TCBI recorded a 13.85% drop in profits compared to the first quarter. Sales, however, rose 13.71% from the previous quarter to $231.77 million. Despite the increase in sales this quarter, declining earnings may suggest that Texas Capital Bancshares is not using its capital as efficiently as possible. In the first quarter, Texas Capital Bancshares earned $39.65 million and total sales reached $203.83 million.
What is return on capital employed?
Return on capital employed is a measure of annual pre-tax profit relative to the capital employed by a business. Changes in profits and sales indicate changes in a company’s ROCE. A higher ROCE is generally indicative of a company’s successful growth and is a sign of higher earnings per share in the future. A low or negative ROCE suggests otherwise. In the second quarter, Texas Capital Bancshares posted a ROCE of 0.01%.
Keep in mind that while ROCE is a good measure of a company’s recent performance, it’s not a very reliable indicator of a company’s earnings or sales in the near future.
ROCE is a powerful metric for comparing the efficiency of capital allocation for similar companies. A relatively high ROCE shows that Texas Capital Bancshares potentially operates at a higher level of efficiency than other companies in its industry. If the company is generating high profits with its current level of capital, some of that money can be reinvested in more capital, which will generally lead to higher returns and ultimately growth in earnings per share ( EPS).
For Texas Capital Bancshares, the positive return on capital employed ratio of 0.01% suggests that management is allocating its capital efficiently. Efficient capital allocation is a positive indicator that a business will achieve more sustainable success and favorable long-term returns.
Texas Capital Bancshares reported second-quarter earnings per share of $0.59/share, which fell short of analysts’ forecast of $0.74/share.
This article was generated by Benzinga’s automated content engine and reviewed by an editor.