Benzinga | Jul 13, 2021 11:05AM EDT

Looking Into KB Home's Return On Capital Employed

Looking at Q2, KB Home (NYSE:KBH) earned $166.51 million, a 42.77% increase from the preceding quarter. KB Home also posted a total of $1.44 billion in sales, a 26.18% increase since Q1. KB Home earned $116.62 million, and sales totaled $1.14 billion in Q1.

What Is ROCE?

Changes in earnings and sales indicate shifts in KB Home'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, KB Home 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.

ROCE is an important metric for the comparison of similar companies. A relatively high ROCE shows KB Home 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 KB Home's case, the positive ROCE ratio will be something investors pay attention to before making long-term financial decisions.

Q2 Earnings Recap

KB Home reported Q2 earnings per share at $1.5/share, which beat analyst predictions of $1.31/share.