Benzinga | Nov 18, 2020 09:57AM EST

Looking Into Spirit AeroSystems Hldgs's Return On Capital Employed

Spirit AeroSystems Hldgs (NYSE:SPR) reported Q3 sales of $806.30 million. Earnings fell to a loss of $176.90 million, resulting in a 48.59% decrease from last quarter. Spirit AeroSystems Hldgs collected $644.60 million in revenue during Q2, but reported earnings showed a $344.10 million loss.

Why ROCE Is 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 Q3, Spirit AeroSystems Hldgs posted an ROCE of -0.15%.

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.

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 Spirit AeroSystems Hldgs, 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.

Q3 Earnings Recap

Spirit AeroSystems Hldgs reported Q3 earnings per share at $-1.34/share, which did not meet analyst predictions of $-1.34/share.