Benzinga | Jan 14, 2021 12:07PM EST

Looking Into AeroVironment's Return On Capital Employed

Looking at Q2, AeroVironment (NASDAQ:AVAV) earned $13.90 million, a 13.02% increase from the preceding quarter. AeroVironment also posted a total of $92.67 million in sales, a 5.96% increase since Q1. In Q1, AeroVironment earned $12.30 million, and total sales reached $87.45 million.

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 Q2, AeroVironment posted an ROCE of 0.03%.

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 AeroVironment, 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.

Q2 Earnings Recap

AeroVironment reported Q2 earnings per share at $0.48/share, which beat analyst predictions of $0.31/share.