Benzinga | Jun 1, 2021 03:14PM EDT

Lemonade Insights: Return On Capital Employed

During Q1, Lemonade's (NYSE:LMND) reported sales totaled $23.50 million. Despite a 56.25% in earnings, the company posted a loss of $52.50 million. Lemonade collected $20.50 million in revenue during Q4, but reported earnings showed a $33.60 million loss.

Why ROCE Is Significant

Changes in earnings and sales indicate shifts in Lemonade'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, Lemonade posted an ROCE of -0.05%.

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 Lemonade, 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 Recap

Lemonade reported Q1 earnings per share at $-0.81/share, which did not meet analyst predictions of $-0.81/share.