Looking Into PayPal Holdings's Return On Capital Employed

PayPal Holdings (NASDAQ: PYPL) posted a 69.2% decrease in earnings from Q1. Sales, however, increased by 13.92% over the previous quarter to $5.26 billion. Despite the increase in sales this quarter, the decrease in earnings may suggest PayPal Holdings is not utilizing their capital as effectively as possible. In Q1, PayPal Holdings hit $854.00 million in earnings, whereas sales totaled $4.62 billion.Why ROCE Is Significant Changes in earnings and sales indicate shifts in PayPal Holdings's Return on Capital Employed, a measure of yearly pre-tax profit relative to capital employed in a business. Generally, a higher ROCE suggests successful growth in a company and is a sign of higher earnings per share for shareholders in the future. In Q2, PayPal Holdings posted an ROCE of 0.02%.View more earnings on PYPLIt 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.ROCE is an important metric for the comparison of similar companies. A relatively high ROCE shows PayPal Holdings 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 capital, some of that money can be reinvested in more capital which will lead to higher returns and earnings per share growth. For PayPal Holdings, the return on capital employed ratio shows the number of assets can actually help the company achieve higher returns, an important note investors will take into account when gauging the payoff from long-term financing strategies.Q2 Earnings PayPal Holdings reported Q2 earnings per share at $1.07/share against analyst predictions of $0.86/share.See more from Benzinga * PayPal Holdings: Q2 Earnings Insights * Understanding PayPal Holdings's Unusual Options Activity * Earnings Scheduled For July 29, 2020(C) 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved. Read More...