Benzinga | Jan 26, 2021 10:02AM EST

Looking Into Phunware's Return On Capital Employed

During Q3, Phunware's (NASDAQ:PHUN) reported sales totaled $3.13 million. Despite a 152.49% in earnings, the company posted a loss of $7.50 million. Phunware collected $2.21 million in revenue during Q2, but reported earnings showed a $2.97 million loss.

What Is Return On Capital Employed?

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, Phunware posted an ROCE of 1.56%.

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 Phunware 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 generally lead to higher returns and earnings per share growth.

In Phunware's case, the positive ROCE ratio will be something investors pay attention to before making long-term financial decisions.

Q3 Earnings Insight

Phunware reported Q3 earnings per share at $-0.09/share, which did not meet analyst predictions of $-0.07/share.