Looking Into Twitter's Return On Capital Employed

In Q2, Twitter TWTR posted sales of $683.44 million. Earnings were up 3580.37%, but Twitter still reported an overall loss of $273.93 million. In Q1, Twitter brought in $807.64 million in sales but lost $7.44 million in earnings.

What Is Return On Capital Employed?

Return on Capital Employed is a measure of yearly pre-tax profit relative to capital employed in a business. Changes in earnings and sales indicate shifts in a company's ROCE. A higher ROCE is generally representative of successful growth in a company and is a sign of higher earnings per share for shareholders in the future. A low or negative ROCE suggests the opposite. In Q2, Twitter posted an ROCE of -0.04%.

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 an important metric for the comparison of similar companies. A relatively high ROCE shows Twitter 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.

In Twitter's case, the ROCE ratio shows the amount of assets may not be helping the company achieve higher returns. Investors may take this into account before making any long-term financial decisions.

Q2 Earnings Recap

Twitter reported Q2 earnings per share at $-1.39/share, which did not meet analyst predictions of $-0.01/share.