Benzinga | Mar 15, 2021 12:04PM EDT

Return On Capital Employed Overview: Cimarex Energy

Cimarex Energy (NYSE:XEC) posted a 137.72% decrease in earnings from Q3. Sales, however, increased by 8.23% over the previous quarter to $434.72 million. Despite the increase in sales this quarter, the decrease in earnings may suggest Cimarex Energy is not utilizing their capital as effectively as possible. Cimarex Energy collected $401.66 million in revenue during Q3, but reported earnings showed a $290.12 million loss.

What Is ROCE?

Changes in earnings and sales indicate shifts in Cimarex Energy's Return on Capital Employed, a measure of yearly pre-tax profit relative to capital employed by a business. Generally, a higher ROCE suggests successful growth of a company and is a sign of higher earnings per share in the future. In Q4, Cimarex Energy posted an ROCE of 0.07%.

It is important to keep in mind ROCE evaluates past performance and is not used as a predictive tool. It is a good measure of a company's recent performance, but several factors could affect earnings and sales in the near future.

ROCE is an important metric for the comparison of similar companies. A relatively high ROCE shows Cimarex Energy 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 Cimarex Energy's case, the positive ROCE ratio will be something investors pay attention to before making long-term financial decisions.

Q4 Earnings Recap

Cimarex Energy reported Q4 earnings per share at $0.89/share, which beat analyst predictions of $0.68/share.