Benzinga | Jun 7, 2021 09:59AM EDT

AppFolio: Return On Capital Employed Insights

During Q1, AppFolio's (NASDAQ:APPF) reported sales totaled $78.92 million. Despite a 106.0% in earnings, the company posted a loss of $5.67 million. In Q4, AppFolio brought in $72.43 million in sales but lost $2.75 million in earnings.

Why ROCE Is Significant

Changes in earnings and sales indicate shifts in AppFolio'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 Q1, AppFolio posted an ROCE of -0.02%.

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.

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.

For AppFolio, the return on capital employed ratio shows the current amount of assets may not actually be helping the company achieve higher returns, a note many investors will take into account when making long-term financial decisions.

Q1 Earnings Insight

AppFolio reported Q1 earnings per share at $0.01/share, which did not meet analyst predictions of $0.07/share.