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Methode Electronics Insights: Return On Capital Employed

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Methode Electronics (NYSE:MEI) posted a 4.8% decrease in earnings from Q3. Sales, however, increased by 1.93% over the previous quarter to $301.00 million. Despite the increase in sales this quarter, the decrease in earnings may suggest Methode Electronics is not utilizing their capital as effectively as possible. Methode Electronics reached earnings of $35.40 million and sales of $295.30 million in Q3.

Why ROCE Is Significant

Changes in earnings and sales indicate shifts in Methode Electronics'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 Q4, Methode Electronics posted an ROCE of 0.04%.

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 Methode Electronics, 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.

Q4 Earnings Insight

Methode Electronics reported Q4 earnings per share at $0.81/share, which beat analyst predictions of $0.7/share.

 

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Posted-In: BZI-ROCENews

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