Benzinga | Jun 9, 2021 10:43AM EDT

Ring Energy Insights: Return On Capital Employed

Ring Energy (AMEX:REI) posted a 112.67% decrease in earnings from Q4. Sales, however, increased by 26.0% over the previous quarter to $39.50 million. Despite the increase in sales this quarter, the decrease in earnings may suggest Ring Energy is not utilizing their capital as effectively as possible. Ring Energy collected $31.35 million in revenue during Q4, but reported earnings showed a $128.41 million loss.

Why ROCE Is Significant

Changes in earnings and sales indicate shifts in Ring Energy'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, Ring Energy posted an ROCE of 0.06%.

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 Ring Energy, the return on capital employed ratio shows the number of assets can actually help the company achieve higher returns, an important note investors will take into account when gauging the payoff from long-term financing strategies.

Q1 Earnings Recap

Ring Energy reported Q1 earnings per share at $0.07/share, which beat analyst predictions of $0.05/share.