Benzinga | Mar 31, 2021 09:28AM EDT

Return On Capital Employed Overview: Cleveland-Cliffs

Looking at Q4, Cleveland-Cliffs (NYSE:CLF) earned $128.80 million, a 183.08% increase from the preceding quarter. Cleveland-Cliffs also posted a total of $2.26 billion in sales, a 37.06% increase since Q3. In Q3, Cleveland-Cliffs earned $45.50 million, and total sales reached $1.65 billion.

Why ROCE Is Significant

Changes in earnings and sales indicate shifts in Cleveland-Cliffs'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, Cleveland-Cliffs posted an ROCE of 0.04%.

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 Cleveland-Cliffs 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.

For Cleveland-Cliffs, 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.

Q4 Earnings Recap

Cleveland-Cliffs reported Q4 earnings per share at $0.14/share, which did not meet analyst predictions of $0.22/share.