Benzinga | Sep 17, 2020 09:46AM EDT

Return On Capital Employed Overview: Rigel Pharmaceuticals

Rigel Pharmaceuticals (NASDAQ:RIGL) reported Q2 sales of $16.02 million. Earnings fell to a loss of $17.39 million, resulting in a 182.71% decrease from last quarter. In Q1, Rigel Pharmaceuticals earned $21.03 million, and total sales reached $55.76 million.

Why ROCE Is Significant

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, Rigel Pharmaceuticals posted an ROCE of -0.28%.

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 Rigel Pharmaceuticals 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 Rigel Pharmaceuticals, 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.

Q2 Earnings Recap

Rigel Pharmaceuticals reported Q2 earnings per share at $-0.1/share, which beat analyst predictions of $-0.13/share.