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Return On Capital Employed Overview: Elastic

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During Q4, Elastic (NYSE: ESTC) brought in sales totaling $123.62 million. However, earnings decreased 18.2%, resulting in a loss of $34.57 million. Elastic collected $113.18 million in revenue during Q3, but reported earnings showed a $42.27 million loss.

What Is Return On Capital Employed?

Changes in earnings and sales indicate shifts in Elastic’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 Q4, Elastic posted an ROCE of -0.08%.

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.

ROCE is an important metric for the comparison of similar companies. A relatively high ROCE shows Elastic 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 Elastic, the return on capital employed ratio shows the current amount of assets may not actually be helping the company achieve higher returns, a note many investors will take into account when making long-term financial decisions.

Q4 Earnings Insight

Elastic reported Q4 earnings per share at $-0.12/share, which beat analyst predictions of $-0.31/share.

 

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Posted-In: Earnings News