SPS Commerce's Return On Capital Employed Insights

Pulled from Benzinga Pro data, SPS Commerce (NASDAQ:SPSC) showed a loss in earnings since Q1, totaling $10.75 million. Sales, on the other hand, increased by 3.79% to $109.18 million during Q2. SPS Commerce reached earnings of $12.60 million and sales of $105.19 million in Q1.

Why Is ROCE Significant?

Return on Capital Employed is a measure of yearly pre-tax profit relative to capital employed by a business. Changes in earnings and sales indicate shifts in a company's ROCE. A higher ROCE is generally representative of successful growth of a company and is a sign of higher earnings per share in the future. A low or negative ROCE suggests the opposite. In Q2, SPS Commerce posted an ROCE of 0.02%.

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.

ROCE is a powerful metric for comparing the effectiveness of capital allocation for similar companies. A relatively high ROCE shows SPS Commerce 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 generally lead to higher returns and, ultimately, earnings per share (EPS) growth.

For SPS Commerce, the positive return on capital employed ratio of 0.02% suggests that management is allocating their capital effectively. Effective capital allocation is a positive indicator that a company will achieve more durable success and favorable long-term returns.

Upcoming Earnings Estimate

SPS Commerce reported Q2 earnings per share at $0.53/share, which beat analyst predictions of $0.49/share.

This article was generated by Benzinga's automated content engine and reviewed by an editor.