Benzinga | Apr 1, 2021 10:06AM EDT

Return On Capital Employed Overview: Sterling Construction Co

Looking at Q4, Sterling Construction Co (NASDAQ:STRL) earned $20.91 million, a 27.47% increase from the preceding quarter. Sterling Construction Co's sales decreased to $347.23 million, a 9.45% change since Q3. In Q3, Sterling Construction Co earned $28.83 million, and total sales reached $383.46 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 Q4, Sterling Construction Co posted an ROCE of 0.08%.

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

Q4 Earnings Recap

Sterling Construction Co reported Q4 earnings per share at $0.2/share, which did not meet analyst predictions of $0.23/share.