Benzinga | Jul 9, 2021 11:09AM EDT

Return On Capital Employed Overview: Argan

Return On Capital Employed Overview: Argan

Looking at Q1, Argan (NYSE:AGX) earned $13.82 million, a 16.44% increase from the preceding quarter. Argan also posted a total of $126.34 million in sales, a 7.77% increase since Q4. Argan earned $11.87 million, and sales totaled $117.23 million in Q4.

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, Argan posted an ROCE of 0.04%.

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 Argan 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.

For Argan, 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 Insight

Argan reported Q1 earnings per share at $0.67/share, which beat analyst predictions of $0.34/share.