Benzinga | Mar 4, 2021 10:22AM EST

Looking Into S&W Seed's Return On Capital Employed

In Q2, S&W Seed (NASDAQ:SANW) posted sales of $15.05 million. Earnings were up 20.78%, but S&W Seed still reported an overall loss of $7.73 million. S&W Seed collected $13.86 million in revenue during Q1, but reported earnings showed a $6.40 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 Q2, S&W Seed posted an ROCE of -0.11%.

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.

In S&W Seed'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

S&W Seed reported Q2 earnings per share at $-0.23/share, which did not meet analyst predictions of $-0.18/share.