Benzinga | Jul 7, 2021 11:15AM EDT

Ambarella: Return On Capital Employed Insights

Ambarella (NASDAQ:AMBA) reported Q1 sales of $70.13 million. Earnings fell to a loss of $10.14 million, resulting in a 27.67% decrease from last quarter. Ambarella collected $62.14 million in revenue during Q4, but reported earnings showed a $14.01 million loss.

What Is ROCE?

Changes in earnings and sales indicate shifts in Ambarella'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, Ambarella 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.

ROCE is an important metric for the comparison of similar companies. A relatively high ROCE shows Ambarella 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 Ambarella's case, the ROCE ratio shows the amount of assets may not be helping the company achieve higher returns. Investors may take this into account before making any long-term financial decisions.

Q1 Earnings Recap

Ambarella reported Q1 earnings per share at $0.23/share, which beat analyst predictions of $0.17/share.