Benzinga | Jun 7, 2021 10:02AM EDT

Biohaven Pharmaceutical Insights: Return On Capital Employed

In Q1, Biohaven Pharmaceutical (NYSE:BHVN) posted sales of $43.82 million. Earnings were up 28.93%, but Biohaven Pharmaceutical still reported an overall loss of $235.88 million. Biohaven Pharmaceutical collected $35.11 million in revenue during Q4, but reported earnings showed a $182.95 million loss.

What Is Return On Capital Employed?

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, Biohaven Pharmaceutical posted an ROCE of 2.46%.

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

Q1 Earnings Insight

Biohaven Pharmaceutical reported Q1 earnings per share at $-2.97/share, which did not meet analyst predictions of $-2.82/share.