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ABM Industries (NYSE:ABM) posted a 54.15% decrease in earnings from Q1. Sales, however, increased by 0.34% over the previous quarter to $1.50 billion. Despite the increase in sales this quarter, the decrease in earnings may suggest ABM Industries is not utilizing their capital as effectively as possible. ABM Industries reached earnings of $109.70 million and sales of $1.49 billion in Q1.
Why ROCE Is Significant
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Changes in earnings and sales indicate shifts in ABM Industries'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 Q2, ABM Industries posted an ROCE of 0.03%.
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.
For ABM Industries, 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 Recap
ABM Industries reported Q2 earnings per share at $0.82/share, which beat analyst predictions of $0.71/share.
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