Benzinga | May 19, 2021 11:22AM EDT

ROCE Article CAAS 0.897986410106421

Looking at Q1, China Automotive Systems (NASDAQ:CAAS) earned $2.84 million, a 152.55% increase from the preceding quarter. China Automotive Systems's sales decreased to $130.34 million, a 11.03% change since Q4. In Q4, China Automotive Systems brought in $146.50 million in sales but lost $5.41 million in earnings.

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, China Automotive Systems posted an ROCE of 0.01%.

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.

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

Q1 Earnings Insight

China Automotive Systems reported Q1 earnings per share at $0.1/share, which beat analyst predictions of $0.03/share.