Benzinga | Sep 28, 2020 10:15AM EDT

Return On Capital Employed Overview: Cleveland-Cliffs

In Q2, Cleveland-Cliffs (NYSE:CLF) posted sales of $1.09 billion. Earnings were up 423.42%, but Cleveland-Cliffs still reported an overall loss of $190.00 million. In Q1, Cleveland-Cliffs brought in $324.50 million in sales but lost $36.30 million in earnings.

What Is ROCE?

Changes in earnings and sales indicate shifts in Cleveland-Cliffs'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 Q2, Cleveland-Cliffs posted an ROCE of -0.17%.

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.

In Cleveland-Cliffs'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.

Q2 Earnings Insight

Cleveland-Cliffs reported Q2 earnings per share at $-0.31/share, which beat analyst predictions of $-0.5/share.