Benzinga | May 10, 2021 11:17AM EDT

Looking Into Builders FirstSource's Return On Capital Employed

Looking at Q1, Builders FirstSource (NASDAQ:BLDR) earned $247.96 million, a 15.92% increase from the preceding quarter. Builders FirstSource also posted a total of $4.20 billion in sales, a 65.94% increase since Q4. In Q4, Builders FirstSource earned $213.89 million, and total sales reached $2.53 billion.

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 Q1, Builders FirstSource posted an ROCE of 0.05%.

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

Q1 Earnings Insight

Builders FirstSource reported Q1 earnings per share at $1.1/share, which beat analyst predictions of $0.71/share.